Solution
a) TRUE; RWACC considers both the cost of debt and cost of capital. In the case Of unlevered firms the debt equals zero, therefore RWACC collapses to R0.
b) TRUE; Strong form efficiency requires that no investor would make excess profit by relying on public, private or any other information. Therefore if all the market information is available (perfect) then it fulfills one of the assumptions of CAPM
c) FALSE - There will no benefit to diversification if assets are perfectly correlated (i.e., have a correlation coefficient equal to one).
d) TRUE; the excess earnings method is classified under the asset approach because it involves valuing all the tangible assets at current fair market values and valuing all the intangible assets in a big pot loosely labelled goodwill.
e) FALSE; FTE is appropriate if the firm’s target debt-to-value ratio applies to the project over its life. Use APV if the project’s level of debt is known over the life of the project.
Carolinemakenamutwiri answered the question on December 14, 2018 at 10:55
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