Intermediate Financial Management (MindTap Course List)
12th Edition
ISBN: 9781285850030
Author: Eugene F. Brigham, Phillip R. Daves
Publisher: Cengage Learning
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Chapter 9, Problem 3MC
Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.
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What is the effect of an increase in the cost of capital on the payback period, profitability index and accounting rate of return?
Payback period will increase, Profitability will decrease, and Accounting rate of return will increase.
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Explain how a change in interest rates in the economy would beexpected to affect each component of the weighted average costof capital.
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.
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Intermediate Financial Management (MindTap Course List)
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- The internal rate of return (IRR) is The same thing as the cost of capital. The discount rate that equates the present values of cash inflows and cash outflows. The same thing as the net present value. The same thing as the profitability index.arrow_forwardQuestion: What does ROI stand for in finance? a) Return on Investment b) Risk of Inflation c) Revenue over Income d) Rate of Interestarrow_forwardWhich of the following statements is true? Question 3Select one: a. The inflation rate is a measure of how much providers of capital expect the purchasing power of their investment to grow. b. The real cost of capital is a measure of how much providers of capital expect the purchasing power of their investment to grow. c. The real cost of capital is a measure of how much providers of capital expect their wealth, as measured by the number of dollars they have, to grow. d. The nominal cost of capital is a measure of how much providers of capital expect the purchasing power of their investment to grow.arrow_forward
- Profitability index: What is the profitability index, and why is it helpful in the capital rationing process?arrow_forwardWhat is the nominal return associated with an investment in capital, and why?arrow_forwardWhy dividen yield ratio increase while dividend payout ratio decrease? please explain in terms of investment . iS IT WORTH TO INVEST IN?arrow_forward
- Based on the market value ratio, which ratio determine stability, earning power and capital? Explain the formula and its impact & importance. Choose one only.arrow_forwardWhich is easier to calculate directly, the expected rate of return on the assets of a firm or the expected rate of return on the firm’s debt and equity?arrow_forwardWhich of the following does nor assign a value to a business opportunity using time-value measurement tools? A. internal rate of return (IRR) method B. net present value (NPV) C. discounted cash flow model D. payback period methodarrow_forward
- Explain how to use the free cash flow valuation model to find the price per share of common equity.arrow_forwardWhat is the equation to calculate the accounting rate of return?arrow_forwardDoes an increase in the long-term growth rate of free cash flowsalways cause an increase in the value of operations? Explain youranswer.arrow_forward
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