subject (corporate finance) Explain the following techniques of capital budgeting used by most firms toevaluate capital acquisitions of the firm. Provide example of each techniques.a. Net present value (NPV)b. Profitability indexc. Accounting rate of return (AROR)

A. Net present values : The differential between the current value of cash inflows and withdrawals…

Answered: subject (corporate

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter16: Capital Structure Decisions

Section: Chapter Questions

Problem 1Q

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The cost of equity is _______. A. the interest associated with debt B. the rate of return required by investors to incentivize them to invest in a company C. the weighted average cost of capital D. equal to the amount of asset turnover
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Deciding a firm's capital structure can be understood as: a. a capital budgeting decision b. a capital structure decision c. a primary market decision d. an asset efficiency decisionn\
For an unlevered firm, the cost of capital can be determined by using the ________. A. Preferred stock yield B. Yield to maturity on the traded debt C. Capital Asset Pricing Model D. Dividend yield
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Which of the following methods of methods of capital budgeting is based cashflows: 6. A Payback B NPV Profitability Index All of the above C 7. Debentures carry: Voting rights and dividend Interest and voting rights A B C Interest and dividend Interest only 8. Capital gearing refers to the relationship between equity and: Short term debt Long term debt Retained earnings А B Goodwill
Net working capital is defined as (select one): A. current assets minus current liabilities. B. a ratio measure of liquidity best used in cross-sectional analysis. C. current liabilities minus current assets. D. the portion of the firm's assets financed with short-term funds.
The relationship between WACC and investors' required rates of return The required rate of return of an investor is the rate of return that an investor demands to purchase a firm’s stocks or bonds and thus provide funds for capital investment. Therefore, required returns from the investors’ point of view correspond to the required returns or the weighted average cost of capital (WACC) from the firm’s point of view. Indicate in the following table whether each of the statements about WACC and the required rates of return of investors is true or false. Statement True False Flotation costs increase the cost of newly issued stock compared to the cost of the firm’s existing, or already outstanding, common stock or retained earnings. The firm’s cost of debt is what an investor is willing to pay for the firm’s stock before considering flotation costs. The amount that an investor is willing to pay for a firm’s bonds is inversely related to the…
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Explain why the required rate of return on a firm's assets must be equal to the weighted average cost of capital associated with its liabilities and equity. Explain using the concepts from the course.
A working capital financing policy that finances almost all assets with long-term capital a. Restricted Policy b. Dividend Policy c. Hedging Policy d. Relaxed Policy It is generally assumed that the greater the firm’s net working capital, the higher its risk. True False
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