İŞLETME FİNANSI I - Deneme Sınavı - 8

Capital-Asset-Pricing Model is a model describing the relationship between the systematic risk of a security, namely beta, and expected returns. As long as the market risk premium is positive, higher beta value bring higher returns.

As long as the correlation is lower than 1, there will always be a benefit of including that security in the portfolio.

The return in excess of the risk-free rate that investors require to
compensate for the risk of an investment is the risk premium.

Different points in this opportunity set would correspond to different securities or portfolios of securities. Despite the feasible set being the entire shaded area, we are still interested in determining the efficient set and that will be on the outside edge of this area. Once again, it is points on the curve from W to M (the minimum variance portfolio) that form the efficient set because they dominate all other points in the shaded area.They are the points that maximize expected returns for given levels of risk (standard deviation).

When we combine securities into a portfolio, the portfolio risk / standard deviation usually become less than their weighted average. The effect of diversification is risk reduction by investing in multiple securities so it is like reducing the risk by putting your eggs in multiple baskets rather than one basket.

Expected return of a portfolio is simply the weighted average of the returns of securities.

The variance of a portfolio is a function of the individual security return variances and of the covariance / relation between them. It also depends on the weight of the securities in the portfolio. The variance of the portfolio does not depend on the expected return of the portfolio.

The characteristic line of the security and the slope of this line shows how much the security return would change in response to a 1% change in market returns.

CAPM summarizes the expected returns on a security or portfolio as a summation of risk-free rate plus risk premium proportional to its beta (systematic risk)

The slope of the characteristic line line shows how much the security return would change in response to a 1% change in market returns. Therefore, the slope of this line is the estimated beta coefficient of that security.

Beta measures the relevant (systematic) risk, which is the co-movement of a securities returns with the market return. Hence, those stocks the returns of which are relatively more sensitive to changes in the market returns have a higher systematic risk and beta.

Plans up to 1 year are called short term in financial planning.

Cash divident policy is not an output of financial planning but an assumption used in.

This is called worst case scenario. In such cases policies such as cost reduction or even liquidation, should be developed in response to such deterioration in the business environment.

Scenario Analysis:The flexibility of financial planning by the use of the capabilities of information technology enables to realize scenario analysis to evaluate the effects of the possible financial and environmental changes on corporate activities in the future.

Option D is about assumptions of financial planning.

The first dimension of financial planning is the time horizon. There exist two time horizons.

The secondary goal of a sales budget can be determined as a guide for  preparation of the working capital and investment budgets, to determine the raw materials, production equipment and labor requirements, to help to the preparation of funding plans and its revisions.

The direct labor budget is used to determine the required labor hours in order to produce the volume of products as stipulated in the production budget.

The basic aims to preparethe cash budgets are:
To make available the required amount of
cash for the realization of planned activities,
To determine the cash shortfall and/or excess,
To coordinate the cash management
for working capital, sales, liabilities and
procurements,

To define the funding sources when necessary,
To plan an effective collection policy,
To stipulate the availability of cash for
investments,

To define the minimum acceptable cash
amount,
To enable the control of cash inflows and
outflows.