After calculating WACC for determining the required rate of return a corporation must achieve on a capital project, an addition percentage may be added to take into consideration: How large the project is. Addition risk the project may bring to the corporation above what the normal acceptable risk is. The interest rate are in the bond market. How long will it take to complete the project.

After calculating WACC for determining the required rate of return a corporation must achieve on a capital project, an addition percentage may be added to take into consideration: How large the project is. Addition risk the project may bring to the corporation above what the normal acceptable risk is. The interest rate are in the bond market. How long will it take to complete the project.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 10QTD

See similar textbooks

Similar questions

What is the formula for calculating present value of a project? If you are given annual profit in perpetuity, initial cost, tax rate, unlevered cost of equity, and how much of the project cost is finance through debt?
Allied uses debt in its capital structure, so some of the money used to finance the project will be debt. Given this fact, should the projected cash flows be revised to show projected interest charges? Explain
A company has made the decision to finance next year’s capital projects through debt rather than additional equity. The benchmark cost of capital for these projects should be _________. The before-tax cost of new-debt financing. The after-tax cost of debt financing. The cost of equity financing. The weighted-average cost of capital.
Calculate two EBIT–EPS coordinates for each of the structures by selecting any two EBIT values and finding their associated EPS values. Plot the two capital structures on a set of EBIT–EPS axes. Indicate over what EBIT range, if any, each structure is preferred. Discuss the leverage and risk aspects of each structure. If the firm is fairly certain that its EBIT will exceed $75,000, which structure would you recommend? Why? What if the tax rate is higher, say 40%? On number 1, can you just pick any random values for EBIT? I'm not sure how to answer these questions.
Which of the following is an example of the capital structure decision? Select one: a. determine the level of net working capital for a firm O b. determine what long-term investment projects should the company takes or determine whether to finance with debt or with equity O c. O d. determine the risks of cash flow for a project O e. determinine which investment project to be accepted or rejected Working capital includes Select one: O a. both firms' short term assets and short term liabilities O b. firms' long term financing O c. firms' work flow O d. firms' short term debt only O e. firms' liquid assets only
The net present value (NPV) of a project is positive when the discount rate used is: Group of answer choices equal to the project's internal rate of return (IRR). greater than the project's internal rate of return (IRR). equal to the yield to maturity of the bonds issued to finance the project. Less than the project's internal rate of return (IRR).
Total project value ($) Debt Option Loan-to-value Rate (%) Interest only period (years) Amortization (years) $35,000,000.00 A 65% 3.25% 3 20 B 70% 3.25% 3 30 C 70% 3.00% 0 30 D 50% 4.25% 0 30
If a capital project has a hurdle rate higher than its internal rate, then its profitability index is
Explain how a net present value (NPV) profile is used to conpare capital projects. How does this profile compare to that of internal rate of return (IRR)? ahow does reinvestment affect both NPV and IRR?
The cost of capital for a new project: Multiple Choice 1.) is determined by the overall risk level of the firm. 2.) is dependent upon the source of the funds obtained to fund that project. 3.) is dependent upon the firm's overall capital structure. 4.) should be applied as the discount rate for all other projects considered by the firm. 5.) depends upon how the funds raised for that project are going to be spent.
Explain how a net present value (NPV) profile is used to compare capital projects. How does this profile compare to that of internal rate of return (IRR)? How does reinvestment affect both NPV and IRR? Support your rationale with at least one citation from the literature.
When considering the discount rate to use for discounting cash flows of a company project, we should use the average of WACC and the marginal cost of capital. T/F?