Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Textbook Question
Chapter 19, Problem 1PS
WACC True or false? Use of the WACC formula assumes
- a. A project supports a fixed amount of debt over the project’s economic life.
- b. The ratio of the debt supported by a project to project value is constant over the project’s economic life.
- c. The firm rebalances debt each period, keeping the debt-to-value ratio constant.
a)
Expert Solution
Summary Introduction
To discuss: Whether the given statement is true or false.
Explanation of Solution
Given statement:
Project supports a fixed amount of debt over the economic life of a project.
Reason:
It is not true because only the ratio of debt is constant over the economic life of a project and the amount of debt is need not to fixed.
Hence, the given statement is false.
b)
Expert Solution
Summary Introduction
To discuss: Whether the given statement is true or false.
Explanation of Solution
Given statement:
The ratio of debt supported by project to project value is fixed over the economic life of a project.
Reason:
It is true that the ratio of debt supported by project to project value is fixed over the economic life of a project.
Hence, the given statement is true.
c)
Expert Solution
Summary Introduction
To discuss: Whether the given statement is true or false.
Explanation of Solution
Given statement:
The firm will keep the debt to value ratio constant and rebalances its debt each period.
Reasons:
It is true that the firm will keep the debt to value ratio constant and rebalances its debt each period.
Hence, the given statement is true.
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Chapter 19 Solutions
Principles of Corporate Finance
Ch. 19.A - The U.S. government has settled a dispute with...Ch. 19.A - You are considering a five-year lease of office...Ch. 19 - WACC True or false? Use of the WACC formula...Ch. 19 - WACC The WACC formula seems to imply that debt is...Ch. 19 - Prob. 3PSCh. 19 - Prob. 4PSCh. 19 - WACC Whispering Pines Inc. is all-equity-financed....Ch. 19 - WACC Table 19.3 shows a book balance sheet for the...Ch. 19 - WACC Table 19.4 shows a simplified balance sheet...Ch. 19 - Prob. 8PS
Ch. 19 - WACC Nevada Hydro is 40% debt-financed and has a...Ch. 19 - Flow-to-equity valuation What is meant by the...Ch. 19 - APV True or false? The APV method a. Starts with a...Ch. 19 - APV A project costs 1 million and has a base-case...Ch. 19 - APV Consider a project lasting one year only. The...Ch. 19 - APV Digital Organics (DO) has the opportunity to...Ch. 19 - Prob. 17PSCh. 19 - Prob. 18PSCh. 19 - Prob. 19PSCh. 19 - Prob. 20PSCh. 19 - Prob. 22PSCh. 19 - Company valuation Chiara Companys management has...Ch. 19 - Prob. 26PSCh. 19 - Prob. 27PS
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