Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
Select all that are true with respect to discount rates:
Group of answer choices
The cost of equity rises as you add leverage to the capital structure because the risk to equity rises as you add leverage.
In a CAPM world, the Beta of equity rises as you add leverage to the capital structure.
The appropriate discount rate for a project should reflect the systematic risk of the expected cash flows of that project.
If the firm has positive debt, then the cost of debt is less than the WACC and the WACC is less than the cost of equity.
The appropriate discount rate for a project that has the same risk as the overall firm is the firm’s WACC.
The appropriate discount rate for a project that has the same risk as the firm’s equity is the firm’s cost of equity.
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