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Question 113  WACC, CFFA, capital budgeting

The US firm Google operates in the online advertising business. In 2011 Google bought Motorola Mobility which manufactures mobile phones.

Assume the following:

  • Google had a 10% after-tax weighted average cost of capital (WACC) before it bought Motorola.
  • Motorola had a 20% after-tax WACC before it merged with Google.
  • Google and Motorola have the same level of gearing.
  • Both companies operate in a classical tax system.

You are a manager at Motorola. You must value a project for making mobile phones. Which method(s) will give the correct valuation of the mobile phone manufacturing project? Select the most correct answer.

The mobile phone manufacturing project's:

Question 132  bill pricing, simple interest rate

A 90-day Bank Accepted Bill (BAB) has a face value of $1,000,000. The simple interest rate is 10% pa and there are 365 days in the year. What is its price now?

Question 319  foreign exchange rate, monetary policy, American and European terms

Investors expect the Reserve Bank of Australia (RBA) to keep the policy rate steady at their next meeting.

Then unexpectedly, the RBA announce that they will increase the policy rate by 25 basis points due to fears that the economy is growing too fast and that inflation will be above their target rate of 2 to 3 per cent.

What do you expect to happen to Australia's exchange rate in the short term? The Australian dollar is likely to:

Question 354  PE ratio, Multiples valuation

Which firms tend to have low forward-looking price-earnings (PE) ratios?

Only consider firms with positive earnings, disregard firms with negative earnings and therefore negative PE ratios.

Question 607  debt terminology

You deposit cash into your bank account. Have you or your money?

Question 686  future

Which of the following statements about futures is NOT correct?

Question 806  stock split, no explanation

A firm conducts a two-for-one stock split. Which of the following consequences would NOT be expected?

Question 823  option, option payoff at maturity, option profit, no explanation

A European call option should only be exercised if:

Question 872  duration, Macaulay duration, modified duration, portfolio duration

A fixed coupon bond’s modified duration is 20 years, and yields are currently 10% pa compounded annually. Which of the following statements about the bond is NOT correct?

Question 922  Stutzer portfolio performance indicator, Sharpe ratio, no explanation

Stutzer’s Portfolio Performance Indicator (PPI) ranks portfolios similarly to what other performance metric, assuming that the portfolios’ continuously compounded returns (LGDR’s) are normally distributed?

Copyright © 2014 Keith Woodward