1.Shirley Shea has evaluated an investment proposal and found that its payback period is one year, it has a negative NPV, and it has a positive IRR. Is this combination of results possible’?
B. No, because a project with a positive IRR has a positive NPV.
C. No, because a project with such a rapid payback period has a positive NPV
2. Raymond Cordier is the business development manager of Aerotechnique S.A., aprivate Belgian subcontractor of aerospace parts. Although Aerotechnique is not listed on the Belgian stock exchange, Cordier needs to evaluate the levered beta for the company. He has access to the following information:
(1) The average levered and average unlevered betas for the group of comparable companies operating in different European countries are 1.6 and 1.0, respectively!
(2) Aerotechnique’s debt-to-equity ratio, based on market values, is 1.4.
Ignoring taxes, the equity beta for Aerotechnique is closest to:
D. None of the above
3. According to Higgins 5-factor model for financial decisions, each company can find an optimal capital structure precisely based on calculation:
A. True B. False