Financial Supervision, Answers Composition

THE UNIVERSITY OR COLLEGE OF WARWICK Examination: Summertime 2009 ECONOMICAL MANAGEMENT

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IB1140 Webpage 2 of 18 ---------------------------------------------------------------------------------------------------------------SECTION A Solution ALL of the concerns in this section Each problem is worth a couple of marks ---------------------------------------------------------------------------------------------------------------1. Which from the following transactions is most consistent with the evidence about market effectiveness? (a) (b) (c) (d) (e)

Secureness prices speedily reflect new relevant info. It is easy to prediction the path of future security selling price changes in the short run. Short-run cost changes arise independently details reaching the industry. On average, most securities are mis-priced. In the absence of legal constraints, shareholders with inside information can no longer earn extra returns. (2 marks) ---------------------------------------------------------------------------------------------------------------2. If a business share price decreased in the past week, what is the best outlook that one can make about this week's price transform? (a) (b) (c) (d) (e) The share selling price will reverse all of last week's loss and more. The share selling price will continue last week's decline. The share value will not modify until fresh information is released. The share price is equally very likely to increase or decrease. The share cost is more likely to lower than increase.

(2 marks) ---------------------------------------------------------------------------------------------------------------3. If investors can consistently make money from analysing published financial data, then the market can, best case scenario, be characterised as: (a) (b) (c) (d) (e)

weak-form successful. semi-strong-form successful. strong-form successful. inefficient. Impossible to say , and without knowing more regarding the released information. (2 marks) ----------------------------------------------------------------------------------------------------------------

IB1140 Page 3 of 18 four. Which task appraisal method is best described by following characteristics? (i) (ii) It is easy to figure out and to describe. It may lead to incorrect decisions when comparing mutually-exclusive investments. (iii) It may be beneficial when the budget available for capital investment is limited. (a) (b) (c) (d) (e) Repayment period. Accounting rate of return. Inside rate of return. Net present value. Profitability index.

(2 marks) ---------------------------------------------------------------------------------------------------------------5. So why might the investment criterion IRR > R bring about the wrong financial commitment in the case of mutually-exclusive projects? (a)

The charts of NPV vs . L for these projects cross over for a few value in the discount level R. (b) The cash goes of mutually-exclusive projects transform sign over and over again. (c) Mutually-exclusive projects have got multiple ideals of IRR. (d) The criterion intended for capital investment is IRR < L. (e) The criterion IRR > R does not bring about the wrong decision. (2 marks) ---------------------------------------------------------------------------------------------------------------6. Organization X needs to choose between undertaking Project A now or Project B in two years' period. Both jobs have the same expected future funds flows, nevertheless Project W will require a reduced initial expense thanks to anticipated technological advancements over the coming two years. Business X utilizes a cost of capital of 13% for both projects. The internet Present Worth of Project A equals ВЈ500, 500. By just how much must the investment expense of Project A exceed regarding Project W for Firm X to prefer to hang on two years and invest in Task B? (a) (b) (c) (d) (e) ВЈ108, 427 ВЈ138, 450 ВЈ391, 573 ВЈ500, 500 None with the above. (2 marks)

IB1140 Page 4 of 18 Denote the initial investment in Project A and Task B simply by IA and IB, correspondingly. The expected future...

A105 TASK 1 Article