Corporate Finance Revision

An undervalued firm is likely to have a P/E ratio higher than its peer group.

• True

• False

Project's cost of capital depends on its risk.

• True

• False

A target leverage ratio means that the firm adjusts its debt proportionally to the project's value or its cash flows.

• True

• False

An abandonment option is the option to walk away.

• True

• False

Future growth opportunities can be thought of as real put options on potential projects.

• True

• False

In real options context, if there is a lot of uncertainty, the benefit of waiting is lower.

• True

• False

In the real option context, the dividends correspond to any value from the investment that we give up by waiting.

• True

• False

If firms smooth dividends, the firm's dividend choice will contain information regarding management's expectations of future earnings.

• True

• False

Managers will be more likely to repurchase shares if they believe the stock to be over-valued.

• True

• False

"Orient Inc." currently has 2 million shares outstanding and its stock is currently trading at 200 EUR per share.

Assuming the company issues a 4:1 stock split, what is its new share price?

• 200 Eur

• 800 Eur

• 50 Eur

• 40 Eur

• 100 Eur