Louisiana Enterprises, an all-equity firm, is considering a new capital investment. Analysis has indicated that the proposed investment has a beta of 0.55 and will generate an expected return of 5.00%. The firm currently has a required return of 10.75% and a beta of 1.25. The investment, if undertaken, will double the firm's total assets. If rRF is 7.00% and the market risk premium is 5%, should the firm undertake the investment?
A. Yes; the beta of the asset will reduce the risk of the firm.
B. No; the expected return of the asset is less than the firm's required return, which is 10.75%.
C. No; the expected return of the asset (5.00%) is less than the required return (9.64%).
D. No; the risk of the asset (beta) will increase the firm's beta.
E. Yes; the expected return of the asset (5.00%) exceeds the required return (4.50%).
Answer: C
You might also like to view...
Examples of important cost drivers in a company's value chain do not include
A. learning and experience. B. capacity utilization. C. input costs. D. customer service. E. production technology and design.
The _________ argument is given just prior to the judge instructing the jury
Fill in the blanks with correct word
Carter Company reported the following financial numbers for one of its divisions for the year; average total assets of $4,100,000; sales of $4,525,000; cost of goods sold of $2,550,000; and operating expenses of $1,372,000. Assume a target income of 10% of average invested assets. Compute residual income for the division:
A. $150,500. B. $193,000. C. $60,300. D. $203,000. E. $197,500.
Which of the following statements is accurate concerning express conditions?
a. A court will enforce any express conditions intended by the parties. b. A court may refuse to enforce an express condition intended by the parties if the court determines it is unfair and harmful to the general public. c. A court requires strict performance if a clause of the contract expressly demands it. d. A court applies an objective standard whenever ruling on a personal satisfaction contract.