EBK HORNGREN'S COST ACCOUNTING
EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475998
Author: Rajan
Publisher: YUZU
Textbook Question
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Chapter 21, Problem 21.16MCQ

A company should accept for investment all positive NPV investment alternatives when which of the following conditions is true?

  1. a. The company has extremely limited resources for capital investment.
  2. b. The company has excess cash on its balance sheet.
  3. c. The company has virtually unlimited resources for capital investment.
  4. d. The company has limited resources for capital investment but is planning to issue new equity to finance additional capital investment.
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Companies that face large investments they cannot finance internally through the retention of earnings must go to the financial market to raise the needed funds. When they do this, they will incur what are commonly referred to as floatation costs. Discuss how these floatation costs should be incorporated into the firm’s analysis of net present value
Many firms still use the internal rate of return rule instead of net present value. When used properly, the two rules lead to the same decision, but the internal rate of return rule has several pitfalls that can trap the unwary.Explain with reasons, THREE (3) pitfalls of using the internal rate of return rule in appraising capital investment.
Is a negative free cash flow (FCF) always a bad sign? A negative free cash flow means that the company does not have sufficient internal funds to finance investments in fixed assets and working capital. Is there a scenario where a negative free cash flow is not a bad sign for the company?

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EBK HORNGREN'S COST ACCOUNTING

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