Concept explainers
Project Risk If you can borrow all the money you need for a project at 6 percent, doesn’t it follow that 6 percent is your cost of capital for the project?

To determine: The respond to the given statement.
Introduction:
The cost of capital is the WACC (Weighted Average Cost of Capital) is the total rate of return for a company which anticipates reimbursing all their investors. It is considered as a financing resource in the target capital structure of a company and it measured in terms of weights of fractions.
Explanation of Solution
Statement: If money borrowed at 6% doesn’t it follow that 6% percent as cost of capital for the project?
“No the statement is false”
Reason:
Because the cost of capital of a project is based on the riskiness of a project. Additionally the origin of money will not considered as cost of capital.
Want to see more full solutions like this?
Chapter 13 Solutions
CORPORATE FINANCE- ACCESS >C<
- Don't use chatgpt!! What does a negative net present value (NPV) indicate? a) The project is profitable.b) The project is not viable.c) The project’s return is equal to the discount rate.d) The project has no cash inflows.arrow_forwardWhat does a negative net present value (NPV) indicate? a) The project is profitable.b) The project is not viable.c) The project’s return is equal to the discount rate.d) The project has no cash inflows.arrow_forwardI need help in this question. What does a negative net present value (NPV) indicate? a) The project is profitable.b) The project is not viable.c) The project’s return is equal to the discount rate.d) The project has no cash inflows.arrow_forward
- I need help!! The time value of money concept is based on the idea that: a) Money loses value over time.b) A dollar today is worth more than a dollar tomorrow.c) Future money is worth more than present money.d) Inflation has no effect on money.arrow_forwardDon't use chatgpt. What does diversification mean in the context of investments?arrow_forwardDon't use chatgpt. The time value of money concept is based on the idea that: a) Money loses value over time.b) A dollar today is worth more than a dollar tomorrow.c) Future money is worth more than present money.d) Inflation has no effect on money.arrow_forward
- Similar projects, E and Z, are being considered using the payback method. Each has an initial cost of $100,000. Annual cash flows for each project are provided in the table at the right. a) What is the pay back period in years for E? (round to two decimal places) b) What is the pay back period in years for Z? Determine the cumulative cash flows for each year in the column next to the table (round to two decimal places)arrow_forwardno ai What is compound interest, and why is it important in personal finance?arrow_forwardNo ai The time value of money concept suggests:A. Money loses value over timeB. Inflation doesn’t matterC. Future money is more valuableD. Money today is worth more than tomorrowarrow_forward
- A food processing company is considering replacing essential machinery. Cost and relevant cash flow details are provided in the table at the right. The company requires an 11% return on its capital. a) What is the present value of the yearly cash flows? Use a Time Value of Money function for full credit. (round to nearest dollar) b) What is the net present value of the project? (round to nearest dollar) c) What is the internal rate of return of the project? Use a Time Value of Money function for full credit. (round to two decimal places)arrow_forwardwhat is the firms' weighted average cost of capital? please show me weight calculation for each capital source.arrow_forwardA small manufacturer is considering an equipment replacement project. The new equipment would have an installed cost of $125,000 and would replace existing equipment that was purchased 3 years ago at an installed cost of $80,000. If the company moves forward with the replacement, it could sell the old equipment for $25,000. Purchasing the new equipment would result in the company's current assets increasing by $12,000 and current liabilities increasing by $9,000. The company uses the 5-year MACRS table for depreciation, and is taxed at 21%. a) What is the accumulated depreciation of the old equipment? b) What is the current book value of the old equipment? c) What is the amount of depreciation recapture/recovery? d) What is the tax on the sale of the old equipment? e) What are the after-tax proceeds from the sale of the old equipment? f) What is the change in Net Working Capital? g) What is the initial investment for the project?arrow_forward
- Principles of Accounting Volume 2AccountingISBN:9781947172609Author:OpenStaxPublisher:OpenStax CollegeIntermediate Financial Management (MindTap Course...FinanceISBN:9781337395083Author:Eugene F. Brigham, Phillip R. DavesPublisher:Cengage Learning
