Which of the following is true about the WACC? It’s the appropriate discount rate for all new projects with the same risk level as the existing assets of the firm The optimal capital structure is the one that minimizes the WACC The value of the firm will be maximized when the WACC is minimized Since discount rates and values move in the same direction, minimizing the WACC will minimize the value of the firms cash flows A, B, and C are true

Q: which of the following statement is true>? 1. return on equity is the ratio of total assets to…

A: Capital budgeting is a way to evaluate profitability of new projects or investment by using various…

Q: If a project with conventional cash flows has an IRR equal to the required return, then: O The…

A: IRR is the actual rate of return earned on the project while the required return is the discount…

Q: If a firm uses its weighted average cost of capital (WACC) as the discount rate for all of the…

A: I. Because in case WACC calculation we only consider cost of debt, tax benefit , cost of equity and…

Q: Is this statement true or false? Please explain in detail Companies should always finance projects…

A: Return on investment or ROI is referred as the financial metric, which measures the probability for…

Q: Why should financial decision makers obtain a good estimate of a firm’s cost of capital? What are…

A: The cost of capital is the cost of using the funds in the business. The funds may be in form of debt…

Q: You are reviewing a profitable investment project that has a conventional cash flow pattern but the…

A: NPV is the net present value of cash flows discounted at a given rate. IRR is the rate at which NPV…

Q: What happens when a firm operates at its optimal capital structure? Its value is maximized. The NPV…

A: Capital structure refers to the mix of different sources of capital, including debt and equity, that…

Q: If you could only have one piece of information to help you understand the discount rate for…

A: When evaluating a project with a different systematic risk than the firm overall, understanding the…

Q: If an investment project will positively affect the cash flows of other products the firm currently…

A: Cannibalization can be defined as the negative effect on the existing business line or the product…

Q: 1. Concepts used in cash flow estimation and risk analysis You can come across different situations…

A: Externalities can also play a significant role from a capital budgeting perspective. Capital…

Q: If you have a project combined with above-average market risk, which one of the following decisions…

A: WACC is the average rate cost of capital calculated by multiplying the cost of funds by its weight.…

Q: What risks are inherent in using the expected future cash flow method of evaluating projects? In…

A: Firm valuation is the process of determining the economic value of a company. This process is…

Q: The firm should accept a project if: the profitability index is greater than or equal to 1. the…

A: Capital budgeting is the process of evaluating the proposed projects and investments so that the…

Q: What is the ditterence between NPV and IRR? Which is the best method corporate companies adapt…

A: Capital budgeting is a crucial process for corporate companies when evaluating investment projects.…

Q: When the present value of the cash inflows exceeds the initial cost of a project, then the project…

A: If present value of cash inflows exceeds the initial cost of a project, then NPV of the project will…

Q: tively rapidly will be more sensitive to changes in the discount rate than the NPV of a project…

A: Net present value is the difference between the present value of cash flow and initial investment.

Q: Which of the following statements is most FALSE? A. If a project with normal cash flows has a…

A: Internal rate of return or IRR is an important concept. It is used to compare the cost of capital to…

Q: Suppose an investment has conventional cash flows with positive NPV. how would it impact your…

A: Conventional cash flow is a cash flow in which an investment or project has an initial cash outflow…

Q: If an investment project has a negative net present value (NPV), which one of the following…

A:

Q: What capital budgeting rule is a simple but imperfect attempt to solve the capital rationing…

A: Answer: Option c.  Payback rule   Explanation: Payback rule is a very simple method which is used to…

Q: You plan to analyze the value of a potential investment by calculating the sum of the present values…

A: The present value of cash flows is computed by discounting the future cash flows with the relative…

Q: ) IRR may produce multiple rates of return when cash flows are non-conventional. B) IRR is best used…

A: Internal Rate of Return(IRR) is a financial metric for cash flow analysis that compares investments…

Q: When the underlying riskiness of free cash flows (FCF) decreases, the value of the project O…

A: Free cash flow refers to funds of the company which is freely available to be repaid to the…

Q: The profitability index O will never be greater than 1. O does not take into account the discounted…

A: The profitability index helps to compare the project. It measure the attractiveness of the project.…

Q: The internal rate of return is defined as the: rate of return a project will generate if the project…

A: The time value of money refers to a concept that defines the money received today is more valuable…

Q: Consider the model of Moral Hazard where firms choose between investing one unit of output in a less…

A: Answer  Safer Project Yield = 3/2 and Probability = 4/5 Risky Project Yield = 2 and Probability =…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.