Q&A Hero

Q: Estimate the fair market value of Kenmore Air's equity per share at the end of 2012 under the following assumptions:a. EBIT in year 2016 will be $200 million.

Q: Estimate the fair market value per share of Kenmore Air's equity at the end of 2016 if the company has 40 million shares outstanding and the market value of its interest-bearing liabilities on the valuation date equals $250 million.

Q: Estimate the fair market value of Kenmore Air at the end of 2012. Assume that after 2016, earnings before interest and tax will remain constant at $200 million, depreciation will equal capital expenditures in each year, and working capital will not change. Kenmore Air's weighted-average cost of capital is 11 percent and its tax rate is 40 percent.

Q: Below is a recent income statement for Gatlin Camera:

Q: The following information is available about Chiantivino Corp. (CC): An activist investor is confident that by terminating CC's money-losing fortified wine division, she can increase free cash flow by $4 million annually for the next decade. In addition, she estimates that an immediate, special dividend of $10 million can be financed by the sale of the division.a. Assuming these actions do not affect CC's cost of capital, what is the maximum price per share the investor would be justified in bidding for control of CC? What percentage premium does this represent?b. Show your answer if you conduct a sensitivity analysis by assuming the cost of capital is 15 percent and the increased cash flow is only $3.5 million per year.

Q: In March of 2011, Macklemore Corp. considered an acquisition of Blue Scholar Learning, Inc. (BSL), a privately-held educational software firm. As a first step in deciding what price to bid for BSL, Macklemore's CFO, Ryan Lewis, has prepared a five-year financial projection for the company assuming the acquisition takes place. Use this projection and BSL's 2010 actual financial figures to answer the questions below. Assume that at year-end 2015 the company's equity is worth 15 times earnings after tax and its debt is worth book value. Macklemore's WACC is 8.0 percent. BSL's WACC is 11.5 percent, and the average of the two companies' WACCs, weighted by sales, is 8.2 percent. What is the maximum acquisition price (in $ millions) Macklemore should pay to acquire BSL's equity at the end of 2010?A. $3,484.68B. $4,723.26C. $4,938.06D. $5,554.68E. $6,343.26F. None of the above.

Q: Figure 9.1In March of 2011, Macklemore Corp. considered an acquisition of Blue Scholar Learning, Inc. (BSL), a privately-held educational software firm. As a first step in deciding what price to bid for BSL, Macklemore's CFO, Ryan Lewis, has prepared a five-year financial projection for the company assuming the acquisition takes place. Use this projection and BSL's 2010 actual financial figures to answer the questions below. What is BSL's free cash flow (in $ millions) for 2011?A. - $938B. - $792C. - $7D. $122E. $1,091F. None of the above.

Q: Consider the following premerger information about a bidding firm (Buyitall Inc.) and a target firm (Tarjay Corp.). Assume that neither firm has any debt outstanding. Buyitall has estimated that the present value of any enhancements that Buyitall expects from acquiring Tarjay is $2,600. What is the NPV of the merger assuming that Tarjay is willing to be acquired for $28 per share in cash?A. $400B. $600C. $1,800D. $2,200E. $2,600F. None of the above.

Q: Atmosphere, Inc. has offered $860 million cash for all of the common stock in ACE Corporation. Based on recent market information, ACE is worth $710 million as an independent operation. For the merger to make economic sense for Atmosphere, what would the minimum estimated value of the enhancements from the merger have to be? A. $0 B. $75 million C. $150 million D. $710 million E. $860 million F. None of the above.

Q: The following table presents forecasted financial and other information for Scott's Miracle-Gro Co.: What is an appropriate estimate of Scott's terminal value as of the end of 2014, using a warranted multiple of free cash flow as your estimate?A. $155 millionB. $2,898.5 millionC. $3,007.0 millionD. $4,365.0 millionE. $7,042.2 millionF. None of the above.

Q: Which of the following statements are correct? I. Going-concern value of a firm is equal to the present value of expected future cash flows to owners and creditors. II. When an acquiring firm purchases a target firm's equity, the acquirer need not assume the target's liabilities. III. The market value of a public company reflects the worth of the business to minority investors. IV. The fair market value of a business is usually the lower of its liquidation value and its going-concern value. A. I and III only B. II and IV only C. II and III only D. I, II, and III only E. II, III, and IV only F. None of the above.

Q: Which of the following statements is/are correct? I. Going-concern value of a firm is equal to the present value of expected net income. II. When a buyer values a target firm, the appropriate discount rate is the buyer's weighted-average cost of capital. III. The liquidation value estimate of terminal value usually vastly understates a healthy company's terminal value. IV. The value of a firm's equity equals the discounted cash flow value of the firm minus all liabilities. A. II only B. III only C. I and II only D. II and III only E. II, III, and IV only F. None of the above.

Q: Ginormous Oil entered into an agreement to purchase all of the outstanding shares of Slick Company for $60 per share. The number of outstanding shares at the time of the announcement was 82 million. The book value of liabilities on the balance sheet of Slick Co. was $1.46 billion. Immediately prior to the Ginormous Oil bid, the shares of Slick Co. traded at $33 per share. What value did Ginormous Oil place on the control of Slick Co.? A. $2.21 billion B. $2.71 billion C. $4.17 billion D. $6.38 billion E. None of the above.

Q: Which of the following statements are correct? I. Liquidation value of a firm is equal to the present worth of expected future cash flows from operating activities. II. When an acquiring firm purchases a target firm's equity, the acquirer must assume the target's liabilities. III. The market value of a public company reflects the worth of the business to minority investors. IV. The fair market value of a business is usually the lower of its liquidation value and its going-concern value. A. I and III only B. II and IV only C. II and III only D. I, II, and III only E. II, III, and IV only F. None of the above.

Q: The standard deviation of returns on Wildcat Oil Drilling is very high. Does this necessarily imply that Wildcat Oil Drilling is a high-risk investment when investors hold diversified portfolios? Explain why or why not.

Q: Suppose that your company's weighted-average cost of capital is 9 percent. Your company is planning to undertake a project with an internal rate of return of 12%, but you believe that this project is not a good investment for the firm. What logical arguments might you use to convince your boss to forego the project despite its high rate of return? Is it possible that making investments with expected returns higher than your company's cost of capital will destroy value? If so, how?

Q: Explain the difference between systematic and unsystematic risk, and why one of these types of risks is rewarded with a risk premium while the other type is not.

Q: Honest Abe's is a chain of furniture retail stores. Integral Designs is a furniture maker and a supplier to Honest Abe's. Honest Abe's has a beta of 1.38 as compared to Integral Designs' beta of 1.12. Both firms carry no debt, i.e., are 100% equity-financed. The risk-free rate of return is 3.5 percent and the market risk premium is 8 percent. What discount rate should Honest Abe's use if it considers a project that involves the manufacturing of furniture?A. 12.46 percentB. 12.92 percentC. 13.50 percentD. 14.08 percentE. 14.54 percentF. None of the above.

Q: Blue Diamond Equipment has 80,000 bonds outstanding that are selling at par. Bonds with similar characteristics are yielding 6.75 percent. The company also has 750,000 shares of 7 percent preferred stock and 2.5 million shares of common stock outstanding. The preferred stock sells for $53 a share. The common stock has a beta of 1.34 and sells for $42 a share. The U.S. Treasury bill is yielding 2.8 percent and the return on the market is 11.2 percent. The corporate tax rate is 38 percent. What is the firm's weighted average cost of capital?A. 10.39 percentB. 10.64 percentC. 11.18 percentD. 11.30 percentE. 11.56 percentF. None of the above.

Q: The weighted average cost of capital for a firm is the:A. discount rate which the firm should apply to all of the projects it undertakes.B. rate of return a firm must earn on its existing assets to maintain the current value of its stock.C. coupon rate the firm should expect to pay on its next bond issue.D. minimum discount rate the firm should require on any new project.E. rate of return shareholders should expect to earn on their investment in this firm.F. None of the above.

Q: The discount rate assigned to an individual project should be based on:A. the firm's weighted average cost of capital.B. the actual sources of funding used for the project.C. an average of the firm's overall cost of capital for the past five years.D. the current risk level of the overall firm.E. the risks associated with the use of the funds required by the project.F. None of the above.

Q: The capital structure weights used in computing the weighted average cost of capital:A. are based on the book values of total debt and total equity.B. are based on the market value of the firm's debt and equity securities.C. are computed using the book value of the long-term debt and the book value of equity.D. remain constant over time unless the firm issues new securities.E. are restricted to the firm's debt and common stock.F. None of the above.

Q: Which of the following statements are correct?I. Using the same risk-adjusted discount rate to discount all future cash flows adjusts for the fact that the more distant cash flows are often more risky than cash flows occurring sooner.II. If you can borrow all of the money you need for a project at 5%, the cost of capital for this project is 5%.III. The best way to obtain the cost of debt capital for a firm is to use the coupon rates on its bonds.IV. The cost of capital, or WACC, is not the correct discount rate to use for all projects undertaken by a firm.A. I and III onlyB. II and IV onlyC. I and II onlyD. I and IV onlyE. I, II, and III onlyF. None of the above

Q: Estimate the appropriate weight of debt to be used when calculating FM's weighted average cost of capital.A. 11.5%B. 19.3%C. 80.7%D. 88.5%E. 100.0%F. None of the above.

Q: Estimate the appropriate weight of equity to be used when calculating FM's weighted average cost of capital.A. 11.5%B. 19.3%C. 80.7%D. 88.5%E. 100.0%F. None of the above.

Q: Estimate FM's after-tax cost of debt capital.A. 2.21%B. 4.10%C. 4.55%D. 6.30%E. 7.00%F. None of the above.

Q: Estimate FM's after-tax cost of equity capital.A. 4.50%B. 6.92%C. 7.93%D. 12.20%E. 17.48%F. None of the above.

Q: The after-tax cost of debt generally increases when: I. a firm's bond rating increases. II. the market-required rate of interest for the company's bonds increases. III. tax rates decrease. IV. bond prices rise. A. I and III only B. II and III only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV F. None of the above.

Q: The pre-tax cost of debt: A. is based on the current yield to maturity of the firm's outstanding bonds. B. is equal to the coupon rate on the latest bonds issued by a firm. C. is equivalent to the average current yield on all of a firm's outstanding bonds. D. is based on the original yield to maturity on the latest bonds issued by a firm. E. has to be estimated as it cannot be directly observed in the market. F. None of the above.

Q: The cost of equity for a firm: A. tends to remain static for firms with increasing levels of risk. B. increases as the unsystematic risk of the firm increases. C. ignores the firm's risks when that cost is based on the dividend growth model. D. equals the risk-free rate plus the market risk premium. E. equals the firm's pretax weighted average cost of capital. F. None of the above.

Q: The dividend growth model can be used to compute the cost of equity for a firm in which of the following situations? I. Firms that have a 100 percent retention ratio II. Firms that pay an unchanging dividend III. Firms that pay a constantly increasing dividend IV. Firms that pay an erratically growing dividend A. I and II only B. I and IV only C. II and III only D. I, II, and III only E. I, III, and IV only F. None of the above.

Q: The excess return earned by a risky asset, for example with a beta of 1.4, over that earned by a risk-free asset is referred to as a: A. market risk premium. B. risk premium. C. systematic return. D. total return. E. real rate of return. F. None of the above.

Q: Which one of the following is an example of systematic risk? A. The Federal Reserve unexpectedly announces an increase in target interest rates. B. A flood washes away a firm's warehouse. C. A city imposes an additional one percent sales tax on all products. D. A toymaker has to recall its top-selling toy. E. Corn prices increase due to increased demand for alternative fuels. F. None of the above.

Q: Which of the following statements concerning risk are correct? I. Systematic risk is measured by beta. II. The risk premium increases as unsystematic risk increases. III. Systematic risk is the only part of total risk that should affect asset prices and returns. IV. Diversifiable risks are market risks you cannot avoid. A. I and III only B. II and IV only C. I and II only D. III and IV only E. I, II, and III only F. None of the above.

Q: Which of the following statements are correct concerning diversifiable, or unsystematic, risks? I. Diversifiable risks can be largely eliminated by investing in thirty unrelated securities. II. There is no reward for accepting diversifiable risks. III. Diversifiable risks are generally associated with an individual firm or industry. IV. Beta measures diversifiable risk. A. I and III only B. II and IV only C. I and IV only D. I, II, and III only E. I, II, III, and IV F. None of the above.

Q: Which of the following are examples of diversifiable risk? I. An earthquake damages Oakland, California. II. The federal government imposes an additional $1,000 fee on all business entities. III. Employment taxes increase nationally. IV. Toymakers are required to improve their safety standards. A. I and III only B. II and IV only C. II and III only D. I and IV only E. I, III, and IV only F. None of the above.

Q: Unsystematic risk: A. can be effectively eliminated by portfolio diversification. B. is compensated for by the risk premium. C. is measured by beta. D. is measured by standard deviation. E. is related to the overall economy. F. None of the above.

Q: When investment returns are less than perfectly positively correlated, the resulting diversification effect means that: A. making an investment in two or three large stocks will eliminate all of the unsystematic risk. B. making an investment in three companies all within the same industry will greatly reduce the systematic risk. C. spreading an investment across five diverse companies will not lower the total risk. D. spreading an investment across many diverse assets will eliminate all of the systematic risk. E. spreading an investment across many diverse assets will eliminate some of the total risk. F. None of the above.

Q: Total risk is measured by _____ and systematic risk is measured by ____. A. beta; alpha B. beta; standard deviation C. WACC; beta D. standard deviation; beta E. standard deviation; variance F. None of the above.

Q: Ten years ago you invested $1,000 for 10 shares of Steeze, Inc. common stock. You sold the shares recently for $2,000. While you owned the stock it paid $10.08 per share in annual dividends. What was your rate of return on Steeze stock?

Q: At $1,000 par value, 10 percent coupon bond matures in 20 years. If the price of the bond is $1,196.80, what is the yield to maturity on the bond? Assume interest is paid annually.

Q: An investment costing $100,000 promises an after-tax cash flow of $36,000 per year for 6 years. a. Find the investment's accounting rate of return and its payback period. b. Find the investment's net present value at a 15 percent discount rate. c. Find the investment's benefit-cost ratio (profitability index) at a 15 percent discount rate. d. Find the investment's internal rate of return. e. Assuming the required rate of return on the investment is 15 percent, which of the above figures of merit indicate the investment is attractive? Which indicate it is unattractive?

Q: When making a capital budgeting decision, which of the following is/are NOT relevant? I. The size of a cash flow. II. The risk of a cash flow. III. The accounting earnings from a cash flow. IV. The timing of a cash flow. A. I only B. II only C. III only D. II and III only E. III and IV only F. They are all relevant.

Q: What is the benefit-cost ratio for an investment with the following cash flows at a 14.5 percent required return? A. 0.94B. 0.98C. 1.02D. 1.06E. 1.11F. None of the above.

Q: You plan to pay $50 for a share of preferred stock that pays a $2.40 dividend per year forever. What annual rate of return will you realize? A. 0.48 percent B. 2.40 percent C. 4.80 percent D. 5.10 percent E. 20.83 percent F. None of the above.

Q: Which of the following statements related to the internal rate of return (IRR) are correct? I. The IRR is the discount rate at which an investment's NPV equals zero. II. An investment should be undertaken if the discount rate exceeds the IRR. III. The IRR tends to be used more than net present value simply because its results are easier to comprehend. IV. The IRR is the best tool available for deciding between mutually exclusive investments. A. I and II only B. I and III only C. II and III only D. I, II, and IV only E. I, II, III, and IV F. None of the above.

Q: Pro forma free cash flows for a proposed project should: I. exclude the cost of employing existing assets that could be sold anyway. II. exclude interest expense. III. include the depreciation tax shield related to the project. IV. exclude any required increase in operating current assets. A. I and II only B. II and III only C. II and IV only D. I, III, and IV only E. I, II, III, and IV F. None of the above.

Q: Which of the following should be included in the analysis of a new product? I. Money already spent for research and development of the new product II. Reduction in sales for a current product once the new product is introduced III. Increase in working capital needed to finance sales of the new product IV. Interest expense on the loan used to finance the new product launch A. II and III only B. II and IV only C. I, II, and III only D. II, III, and IV only E. I, II, III, and IV F. None of the above.

Q: Naomi plans on saving $3,000 a year and expects to earn an annual rate of 10.25 percent. How much will she have in her account at the end of 45 years? A. $1,806,429 B. $1,838,369 C. $2,211,407 D. $2,333,572 E. $2,508,316 F. None of the above.

Q: You plan to buy a new Mercedes four years from now. Today, a comparable car costs $82,500. You expect the price of the car to increase by an average of 4.8 percent per year over the next four years. How much will your dream car cost by the time you are ready to buy it? A. $98,340.00 B. $98,666.67 C. $99,517.41 D. $99,818.02 E. $100,023.16 F. None of the above.

Q: Ian is going to receive $20,000 six years from now. Sunny is going to receive $20,000 nine years from now. Which one of the following statements is correct if both Ian and Sunny apply a 7 percent discount rate to these amounts? A. The present values of Ian and Sunny's monies are equal. B. In future dollars, Sunny's money is worth more than Ian's money. C. In today's dollars, Ian's money is worth more than Sunny's. D. Twenty years from now, the value of Ian's money will be equal to the value of Sunny's money. E. Sunny's money is worth more than Ian's money given the 7 percent discount rate. F. None of the above.

Q: Which of the following figures of merit does not directly take into consideration the time value of money? I. Payback period II. Internal rate of return III. Net present value (NPV) IV. Accounting rate of return A. IV only B. I & III only C. II & III only D. I & II only E. I & IV only F. I, II, III, and IV

Q: Which of the following figures of merit might not use all possible cash flows in its calculations? I. Payback period II. Internal rate of return III. Net present value (NPV) IV. Accounting rate of return A. III only B. I & III only C. II & III only D. I & IV only E. III & IV only F. I, II, III, and IV

Q: Which of the following is not an important step in the financial evaluation of an investment opportunity? A. Calculate a figure of merit for the investment. B. Estimate the accounting rate of return for the investment. C. Estimate the relevant cash flows. D. Compare the figure of merit to an acceptance criterion. E. All of the above are important steps.

Q: Can a company incur costs of financial distress without ever going bankrupt? Explain. What is the nature of these costs?

Q: Calculate next year's times burden covered ratio and earnings per share if Nile sells 2 million new shares at $50 a share instead of raising new debt.

Q: Calculate next year's earnings per share assuming Nile raises the $100 million of new debt.

Q: "A firm can't use interest tax shields unless it has (taxable) income to shield." What does this statement imply for capital structure? Explain briefly, comparing the following two examples: a start-up biotech firm and an electric utility company.

Q: The interest tax shield has no value when a firm has:I. no taxable income.II. debt-equity ratio of 1.III. zero debt.IV. no leverage.A. I and III onlyB. II and IV onlyC. I, III, and IV onlyD. II, III, and IV onlyE. I, II, and IV onlyF. None of the above.

Q: Calculate Squamish's earnings per share next year assuming Squamish raises $40 million of new debt at an interest rate of 7 percent.A. 1.28B. 2.00C. 2.12D. 2.22E. 3.06F. None of the above.

Q: Calculate Squamish's times burden covered ratio for the next year assuming annual sinking fund payments on the new debt will equal $8 million.A. 1.01B. 1.08C. 1.38D. 1.49E. 1.95F. None of the above.

Q: Calculate Squamish's times interest earned ratio for next year assuming the firm raises $40 million of new debt at an interest rate of 7 percent.A. 2.00B. 3.09C. 3.66D. 4.35E. None of the above.

Q: For next year, calculate Squamish's earnings per share if Squamish sells 2 million new shares at $20 a share.A. 1.28B. 1.39C. 2.00D. 2.22E. 4.00F. None of the above.

Q: For next year, calculate Squamish's times burden covered ratio if Squamish sells 2 million new shares at $20 a share.A. 1.03B. 1.38C. 1.60D. 1.89E. 2.10F. None of the above.

Q: According to the pecking-order theory proposed by Stewart Myers of MIT, which of the following are correct? I. For financing needs, firms prefer to first tap internal sources such as retained profits and excess cash. II. There is an inverse relationship between a firm's profit level and its debt level. III. Firms prefer to issue new equity rather than source external debt. IV. A firm's capital structure is dictated by its need for external financing. A. I and III only B. II and IV only C. I, III, and IV only D. I, II, and IV only E. I, II, III, and IV F. None of the above.

Q: Which of the following is NOT a likely financing policy for a rapidly growing business? A. Adopt a modest dividend payout policy that enables the company to finance most of its growth externally. B. Borrow funds rather than limit growth, thereby limiting growth only as a last resort. C. Maintain a conservative leverage ratio to ensure continuous access to financial markets. D. If external financing is necessary, use debt to the point it does not affect financial flexibility. E. None of the above.

Q: Which of the following factors favor the issuance of debt in the financing decision? I. Market signaling II. Distress costs III. Management incentives IV. Financial flexibility A. I and II only B. I and III only C. II and IV only D. I, II, and III only E. I, II, and IV only F. None of the above.

Q: Which of the following factors favor the issuance of equity in the financing decision? I. Market signaling II. Distress costs III. Management incentives IV. Financial flexibility A. I and II only B. I and III only C. II and IV only D. II, III, and IV only E. I, II, and IV only F. None of the above.

Q: In general, the capital structures used by non-financial U.S. firms: A. typically result in debt-to-asset ratios between 60 and 80 percent. B. tend to converge to the same proportions of debt and equity. C. tend to be those that maximize the use of the firm's available tax shelters. D. vary significantly across industries. E. None of the above.

Q: Which of the following is/are helpful for evaluating the effect of leverage on a company's risk and potential returns? I. Estimated pro forma coverage ratios II. The recognition that financing decisions do not affect firm or shareholder value III. A range of earnings chart and proximity of expected EBIT to the breakeven value IV. A conservative debt policy that obviates the need to evaluate risk A. I only B. III only C. I and III only D. II and III only E. IV only F. None of the above.

Q: The term "financial distress costs" includes which of the following? I. Direct bankruptcy costs II. Indirect bankruptcy costs III. Direct costs related to being financially distressed, but not bankrupt IV. Indirect costs related to being financially distressed, but not bankrupt A. I only B. III only C. I and II only D. III and IV only E. I, II, III, and IV F. None of the above.

Q: The basic lesson of the M&M theory is that the value of a firm is dependent upon: A. the firm's capital structure. B. the total cash flow of the firm. C. minimizing the marketed claims. D. the amount of marketed claims to that firm. E. the size of the stockholders' claims. F. None of the above.

Q: Homemade leverage is: A. the incurrence of debt by a corporation in order to pay dividends to shareholders. B. the exclusive use of debt to fund a corporate expansion project. C. the borrowing or lending of money by individual shareholders as a means of adjusting their level of financial leverage. D. best defined as an increase in a firm's debt-equity ratio. E. the term used to describe the capital structure of a levered firm. F. None of the above.

Q: The best financing choice is the one that: A. sets the debt-to-assets ratio equal to 1. B. trades off the tax disadvantage of debt against the signaling effects of equity. C. maximizes expected cash flows. D. ignores the false comfort of financial flexibility. E. results in the lowest possible financial distress costs.

Q: Financial leverage: I. increases expected ROE but does not affect its variability. II. increases breakeven, like operating leverage, but increases the rate of earnings per share growth once breakeven is achieved. III. is a fundamental financial variable affecting sustainable growth. IV. increases expected return and risk to owners. A. I and II only B. I and III only C. II and IV only D. II, III, and IV only E. I, II, III, and IV F. None of the above.

Q: You believe interest rates will soon fall. a. Would you rather own a three-year, 6 percent coupon, fixed-rate bond or an equivalent-risk, three-year, floating-rate bond currently paying 6 percent interest? b. Would your answer to (a) change if you were contemplating issuing a bond rather than owning one? If so, how? c. Would your answer to (a) change if, as an investor, you believed interest rates would soon rise? If so, why?

Q: If the stock market in the United States is efficient, how do you explain the fact that some people make very high returns? Would it be more difficult to reconcile very high returns with efficient markets if the same people made extraordinary returns year after year?

Q: Chapter 5 presents evidence that the average annual rate of return on common stocks over many years has exceeded the return on government bonds in the United States, while returns on common stocks have also exhibited more volatility than returns on U.S. government bonds. Suppose that last year, the realized rate of return on government bonds exceeded the return on common stocks. Your colleague suggests that "last year shows us that investors are now willing to settle for lower returns on stocks than on bonds." How would you interpret this result?

Q: Which of the following are the most likely reasons for why a stock price might not react at all on the day that new information related to the stock issuer is released? I. Insiders knew the information prior to the announcement II. Investors need time to digest the information prior to reacting III. The information has no bearing on the value of the firm IV. The information was anticipated A. I and II only B. I and III only C. II and III only D. II and IV only E. III and IV only F. None of the above.

Q: Individuals who continually monitor the financial markets seeking mispriced securities: A. earn excess profits over the long-term. B. make the markets increasingly more efficient. C. are never able to find a security that is temporarily mispriced. D. are overwhelmingly successful in earning abnormal profits. E. are always quite successful using only historical price information as their basis of evaluation. F. None of the above.