For each of the statements below, indicate whether the statement is True or False AND provide...

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Accounting

For each of the statements below, indicate whether the statementis True or False AND provide one or two explanatory sentences tosupport your answer.
a. In New Zealand, the Capital Asset Pricing Model (CAPM) thatis used to compute the cost of equity capital adjusts the risk freerate for the average investor tax rate but this adjustment is notmade for the risk free rate component in the post-tax market riskpremium.
b. Reinvestments in the firm’s net operating assets are deductedfrom NOPAT to arrive at free cash flows to the firm to maintain thefirm’s operating capability and to grow the firm.
c. To ensure the free cash flows in the perpetuity (terminal)period grow at a constant terminal growth rate g, the relationshipsbetween components in the income statement and balance sheet mustbe the same in the last year of the horizon period and first yearof the perpetuity (terminal) period.
d. When using the market multiples approach to value thetarget’s firm/enterprise value, we would use multiples based oncomparable companies’ net profit after tax and book value of equityand apply these multiples to the target firm’s net operating profitafter tax and net operating assets.

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Answer A In capital budgeting company accountants and economic analysts regularly use the capital asset pricing model CAPM to estimate the fee of shareholder fairness Described as the connection among systematic threat and predicted go back for belongings CAPM is broadly used for the pricing of unstable securities producing predicted returns for belongings given the related threat and calculating fees of capital The Capital Asset Pricing Model CAPM describes the connection among systematic threat and predicted go back for belongings specifically stocks CAPM is broadly used at some stage in finance for pricing unstable securities and producing predicted returns for belongings given the threat of these belongings and fee of capital The marketplace threat top class is the distinction among the predicted go back on a marketplace portfolio and the threatunfastened fee The marketplace threat top class is identical to the slope of the safety marketplace line SML a graphical illustration of the capital asset pricing model CAPM CAPM measures the desired fee of go back on fairness investments and its miles an crucial detail of present day portfolio concept and discounted coins waft valuation Market threat top class describes the connection among returns from an fairness marketplace portfolio and treasury bond yields The threat top class displays the desired returns ancient returns and predicted returns The ancient marketplace threat top class could be the identical for all buyers because the cost is See Answer

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For each of the statements below, indicate whether the statementis True or False AND provide one or two explanatory sentences tosupport your answer.a. In New Zealand, the Capital Asset Pricing Model (CAPM) thatis used to compute the cost of equity capital adjusts the risk freerate for the average investor tax rate but this adjustment is notmade for the risk free rate component in the post-tax market riskpremium.b. Reinvestments in the firm’s net operating assets are deductedfrom NOPAT to arrive at free cash flows to the firm to maintain thefirm’s operating capability and to grow the firm.c. To ensure the free cash flows in the perpetuity (terminal)period grow at a constant terminal growth rate g, the relationshipsbetween components in the income statement and balance sheet mustbe the same in the last year of the horizon period and first yearof the perpetuity (terminal) period.d. When using the market multiples approach to value thetarget’s firm/enterprise value, we would use multiples based oncomparable companies’ net profit after tax and book value of equityand apply these multiples to the target firm’s net operating profitafter tax and net operating assets.