FINC600 Week 2 Assignment - Homework Problems

FINC600 Week  2 Assignment - Homework Problems 

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Problem 4-10

Under what conditions does r, a stock's market capitalization rate, equal its earnings­price ratio EPS1/P0?

Problem 4-12

What is meant by the "horizon value" of a business? How can it be estimated?

Problem 5-9

Respond to the following comments:                                                                                                                                                  
a. "I like the IRR rule. I can use it to rank projects without having to specify a discount rate."
b. "I like the payback rule. As long as the minimum payback period is short, the rule makes sure that the company takes no borderline projects. That reduces risk."

Problem 5-16

Some people believe firmly, even passionately, that ranking projects on IRR is OK if each project's cash flows can be reinvested at the project's IRR. They also say that the NPV rule "assumes that cash flows are reinvested at the opportunity cost of capital." Think carefully about these statements. Are they true? Are they helpful?