1) Explain why increasing the amount of debt according to M&M does not impact the WACC assuming that all M&M assumptions apply.

2) Why might an investor prefer a company to use a share buyback to return cash to equity holders instead of using a special dividend.

3) You are a young entrepreneur, and your experienced investor requires a business plan be created before they provide funding. Why is this? Explain your answer.

4) Explain why a long position in a put option can only lead to limited gains. Give a practical example.

5) Explain what is meant by purchasing power parity and the relationship it has to interest rate parity.

6) An investor has investments only in three Australian banks. Would adding an investment in a fourth Australian bank be likely to increase or decrease his non-systematic risk. Explain your answer.

Answer rating: 100% (QA)

1 The WACC is equal to the cost of equity and market weighted average of the debts cost If a company... View the full answer