Which of the following would be the BEST motivator for outsourcing information technology (IT) systems?
Internal IT resources are stretched
IT is regarded as a core strategic need
There is high risk of compromising confidentiality of information held on the IT system.
There is high risk of the cost of systems maintenance compromising other business objectives.
Reducing risk without any impact on business cash flows is most likely to
Decrease investors' required rate of return
Decrease the Enterprise Value
Decrease the PV of expected future business cash flows
Increase the cost of capital
Under CAPM, diversifiable risk: ( two answers )
Is also referred to as systematic risk. (systematic risk: affect all sectors)
Is a sector-specific but NOT firm-specific
Is unavoidable for most businesses
Affects share prices
Which of the following statements is true?
Risk seeking investors expect a positive correlation between risk and expected return.
Risk is an inevitable result of being in business
Minimising all risk should be a key objective for all firms
For a retail company, the possible loss of sales due to heavy snow forecast next week is best described as:
Risk
Volatility
Uncertainty
Pre-transactio exposure
Lower borrowing interest costs will usually be achieved by:
Increasing gearing
Accepting restrictive loan covenants
Bootstrapping
Actively pursuing riskier business rather than higher return
Making a special dividend payment
The average risk free interest is 2%. The FTSE world index returned minus1% last year, and similar poor equity returns are forecast for the coming year. Over the longer term, it is expected that the market risk premium will be 6%. A company has a beta of one. Under CAPM, the company's cost of equity is?
Minus 1%
1%
3%
3.5%
8%
