Which one of the following statements is correct? The subjective approach assesses the risks of each...
|
Which one of the following statements is correct? |
| The subjective approach assesses the risks of each project and assigns an adjustment factor that is unique just for that project. |
| Overall, a firm makes better decisions when it uses the subjective approach than when it uses its WACC as the discount rate for all projects. |
| Firms will correctly accept or reject every project if they adopt the subjective approach. |
| Mandatory projects should only be accepted if they produce a positive NPV when the firm's WACC is used as the discount rate. |
| The pure play approach should only be used with low-risk projects. |
Homework Answers
The correct statement is:-
Overall, a firm makes better decisions when it uses the subjective approach than when it uses its WACC as the discount rate for all projects
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Which one of the following statements is correct?
The subjective approach assesses the risks of each...
The pure play approach: Select one: a. Should be used only if a firm has more...
The pure play approach: Select one: a. Should be used only if a firm has more than three divisions. b. Involves finding comparison companies that focus on the type of project in which we are interested. c. Is most useful when each division makes a multitude of different products. d. Is easier to implement than the subjective approach. e. Cannot be used if the firm has preferred stock outstanding.
Which of the following statements is INCORRECT? Select one: a. For independent projects, the decision to...
Which of the following statements is INCORRECT? Select one: a. For independent projects, the decision to accept or reject will always be the same using either the MIRR method or the NPV method. b. The IRR method is appealing to some managers because it produces a rate of return upon which to base decisions rather than a dollar amount like the NPV method. c. One of the disadvantages of choosing between mutually exclusive projects on the basis of discounted payback...
Question 10 (Mandatory) (1 point) Which of the following statements is true? If the new project...
Question 10 (Mandatory) (1 point) Which of the following statements is true? If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital. O If the new project is riskier than the firm's existing projects, then it should be charged a lower cost of capital. If the new project is riskier than the firm's existing projects, then it should be charged the firm's cost of capital. The new project's risk...
True or False question The after-tax cost of debt generally increases when a firm's bond rating...
True or False question The after-tax cost of debt generally increases when a firm's bond rating decreases. The weighted average cost of capital for a firm is the discount rate which the firm should apply to all of the projects it undertakes. Assigning discount rates to individual projects based on the risk level of each project may cause the firm's overall weighted average cost of capital to either increase or decrease over time. Other things being equal, the weighted average...
Which of the following statements is CORRECT? A) The NPV method is regarded by most academics...
Which of the following statements is CORRECT? A) The NPV method is regarded by most academics as being the best indicator of a project's profitability, hence most academics recommend that firms use only this one method and disregard other methods. B) The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability. C) A project's NPV depends on the total amount of cash...
PLEASE DETAIL THE ANSWERS Assume that BF, Inc., has 10,000 bonds outstanding, paying a 5.6 percent...
PLEASE DETAIL THE ANSWERS Assume that BF, Inc., has 10,000 bonds outstanding, paying a 5.6 percent coupon rate semi- annually and with a par value of $1,000 per bond. They all mature in 25 years and currently sell for 97 percent of par. Their current yield to maturity is 6.4%. The firm’s marginal tax rate is 35%. The company also has 435,000 shares outstanding, currently selling for $61 per share. The stock beta of the company is currently estimated at...
If the projects were independent, which project(s) would be accepted according to the IRR method? a)...
If the projects were independent, which project(s) would be
accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
If the projects were mutually exclusive, which project(s) would
be accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
The reason is
a) TheNPV and IRR approaches use the same reinvestment rate
assumption and so both approaches reach the same...
Which of the following statements are correct? I. A positive net present value signals an accept...
Which of the following statements are correct? I. A positive net present value signals an accept decision. II. Projects should be accepted when the profitability index is greater than 1. III. A payback period that is less than the required period signals an accept decision. IV. When the internal rate of return exceeds the required return, a project should be accepted.
1. Smith Corporation has a cost capital of 10% and is currently considering an investment of...
1. Smith Corporation has a cost capital of 10% and is currently considering an investment of $825 m. This investment is expected to generate after-tax cash flows of $253 m per year for 7 years and an additional after-tax salvage of $110 m in year 7. What is the investment's profitability index? A. 1.19 B. 1.33 C. 1.56 2. Which of the following statements is least likely to be correct? A. The NPV profile graphed the NPV of a capital...
MicroLaser, Inc. is evaluating two projects, of which only one can be developed. Project cash flows...
MicroLaser, Inc. is evaluating two projects, of which only one can be developed. Project cash flows and discount rate are outlined below. Using NPV analysis, which project should MicroLaser accept? Discount Rate Year 0 Year 1 Year 2 Year 3 Year 4 Project A 5% ($20,000) $5,500 $5,500 $5,500 $5,500 Project B 3% ($16,000) $4,500 $4,500 $4,500 $4,500
Question 10 (Mandatory) (1 point) Which of the following statements is true? If the new project is riskier than the firm's existing projects, then it should be charged a higher cost of capital. O If the new project is riskier than the firm's existing projects, then it should be charged a lower cost of capital. If the new project is riskier than the firm's existing projects, then it should be charged the firm's cost of capital. The new project's risk...
Which of the following statements is CORRECT? A) The NPV method is regarded by most academics as being the best indicator of a project's profitability, hence most academics recommend that firms use only this one method and disregard other methods. B) The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability. C) A project's NPV depends on the total amount of cash...
If the projects were independent, which project(s) would be
accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
If the projects were mutually exclusive, which project(s) would
be accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
The reason is
a) TheNPV and IRR approaches use the same reinvestment rate
assumption and so both approaches reach the same...
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