A firm should never accept a project if its acceptance would lead to an increase in...
A firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital (its WACC.)
a. True b. False
2 Because "present value" refers to the value of cash flows that occur at different points in time, a series of present values of cash flows should not be summed to determine the value of a capital budgeting project.
a. True b. False
3 The IRR method is based on the assumption that projects' cash flows are reinvented at the project's risk-adjusted cost of capital
a. True b. False
4 One advantage of the payback method for evaluating potential investments is that it provides information about a project's liquidity and risk.
a. True b. False
Homework Answers
1)
Relevant WACC is used for project discounting based on the riskiness of the cash flows of the project. If NPV is less than $0, project should be rejected not when discount rate is increased.
Hence, given statement is False.
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