# SOLVED:Finanacial management and risk

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## Description

Which of the following statements is CORRECT? Which of the following statements is CORRECT? The current price of a stock is \$22, and at the end of one year its price will be either \$27 or \$17. The annual risk-free rate is 6.0%, based on daily compounding. A 1-year call option on the stock, with an exercise price of \$22, is available. Based on the binomial model, what is the option’s value? (Hint: Use daily compounding. An option that gives the holder the right to sell a stock at a specified price at some future time is Which of the following statements is CORRECT? An investor who writes standard call options against stock held in his or her portfolio is said to be selling what type of options? Which of the following statements is CORRECT? Assume a company’s target capital structure is 50% debt and 50% common equity. With its current financial policies, Flagstaff Inc. will have to issue new common stock to fund its capital budget. Since new stock has a higher cost than reinvested earnings, Flagstaff would like to avoid issuing new stock. Which of the following actions would REDUCE its need to issue new common stock? Perpetual preferred stock from Franklin Inc. sells for \$97.50 per share, and it pays an \$8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company’s cost of preferred stock for use in calculating the WACC? To help them estimate the company’s cost of capital, Smithco has hired you as a consultant. You have been provided with the following data: D1 = \$1.45; P0 = \$22.50; and g = 6.50% (constant). Based on the DCF approach, what is the cost of common from reinvested earnings? As a consultant to Basso Inc., you have been provided with the following data: D1 = \$0.67; P0 = \$27.50; and g = 8.00% (constant). What is the cost of common from reinvested earnings based on the DCF approach? Which of the following statements is CORRECT? Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? Which of the following statements is CORRECT? Which of the following statements is CORRECT? Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. Which of the following statements is NOT a disadvantage of the regular payback method? Which of the following statements is CORRECT? Which of the following statements is CORRECT? Which of the following factors should be included in the cash flows used to estimate a project’s NPV? Which of the following rules is CORRECT for capital budgeting analysis? Which of the following procedures does the text say is used most frequently by businesses when they do capital budgeting analyses? Which of the following statements is CORRECT? Which one of the following would NOT result in incremental cash flows and thus should NOT be included in the capital budgeting analysis for a new product? A company expects sales to increase during the coming year, and it is using the AFN equation to forecast the additional capital that it must raise. Which of the following conditions would cause the AFN to increase? Which of the following statements is CORRECT? Which of the following statements is CORRECT? Which of the following is NOT one of the steps taken in the financial planning process? Which of the following assumptions is embodied in the AFN equation? Which of the following statements is CORRECT?