Minimizing the weighted average cost of capital allows management to undertake a larger number of profitable projects, thereby further increasing the value of a firm. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Using the WACC to evaluate all projects may lead managers into accepting high-risk projects that do not compensate adequately for risk and into rejecting low-risk projects that compensate fully for the level of risk but may not have particularly high rates of return. Describe the situations when using a WACC is not appropriate and how […]
Date: September 19th, 2020
The ability to purchase production inputs on credit allows a firm to partially offset the length of time resources are tied up in the operating cycle. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
If all projects are assigned the same discount rate for purposes of evaluation, which of the following could occur? A) Low-risk projects could be rejected when in fact they are good investment choices. B) High-risk projects could be accepted when in fact they are poor investment choices. C) High-risk projects could be accepted when in […]
Date: September 19th, 2020
Takelmer Industries has a different WACC for each of three types of projects. Low-risk projects have a WACC of 8.00%, average-risk projects a WACC of 10.00%, and high-risk projects a WACC of 12%. Which of the following projects do you recommend the firm accept? Project Level of Risk IRR A Low 9.50% B Average 8.50% […]
Date: September 19th, 2020
It is necessary to assign the appropriate cost of capital for each individual project that reflects that project’s ________ when doing capital budgeting. A) life B) cash flows C) riskiness D) managers ANSWER Answer: C
Date: September 19th, 2020
The conflict resulting from a manager’s desire to increase a firm’s risk without increasing current borrowing costs and lenders’ desire to limit lending is one effect of the ________ problem. A) agency B) leverage C) capital D) variable cost ANSWER A
Date: September 19th, 2020
At the end of year 1 firm XYZ has TA=$325 bn., and it is financed with debt with a book value of $125 mn. and equity with a book value of $200 mn. The firm must pay 10% interest annually on its debt. In year 2, the firm had a net income of $55 mn. […]
Date: September 19th, 2020
The cash conversion cycle of a firm is the difference between the number of days resources are tied up in the operating cycle and the average number of days the firm can delay making payment on the production inputs purchased on credit. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
A corporation has $10,000,000 of 10 percent preferred stock outstanding and a 40 percent tax rate. The amount of earnings before interest and taxes (EBIT) required to pay the preferred dividends is ________. A) $1,000,000 B) $400,000 C) $600,000 D) $1,666,667 ANSWER D
Date: September 19th, 2020
