9 What is the maindisadvantage of debtfinancing for a project?The interest payments are tax-deductibleb. It can be difficult to obtain forsmall or risky projectsO a.O c.It requires the project to give uppartial ownership to investorsO d. It involves making regularrepayments, which can be a strainon cash flow

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Description: 9 What is the maindisadvantage of debtfinancing for a project?The interest payments are tax-deductibleb. It can be difficult to obtain forsmall or risky projectsO a.O c.It requires the project to give uppartial ownership to investorsO d. It involves

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What is the main disadvantage of debt financing for a project?

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter15: Capital Investment Analysis

Section: Chapter Questions

Problem 10CDQ

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Why do companies often prefer debt financing to other forms of financing for capitalinvestments?a. Actually, they don't prefer debt financing. They usually try to use retainedearnings for capital investments.b. Because bond holders are happy to just break even on their bonds.c. Because the MARR all but guarantees the projects will return yields greater thanthe interest on the loans.d. Because debt interest is tax deductible, reducing significantly the actual cost ofborrowing money for projects.
Which of the following statements is CORRECT? Group of answer choices Since debt capital can cause a company to go bankrupt but equity capital cannot, debt is riskier than equity, and thus the after-tax cost of debt is always greater than the cost of equity. The tax-adjusted cost of debt is always greater than the interest rate on debt, provided the company does in fact pay taxes. If a company assigns the same cost of capital to all of its projects regardless of each project’s risk, then the company is likely to reject some safe projects that it actually should accept and to accept some risky projects that it should reject. Because no flotation costs are required to obtain capital as retained earnings, the cost of retained earnings is generally lower than the after-tax cost of debt. Higher flotation costs tend to reduce the cost of equity capital.
Which of the following statements relating to working capital financing is not correct? A. A conservative policy uses long-term debt to finance non-current assets. B. Short-term debt is cheaper than long-term debt. C. An aggressive policy uses long-term debt to finance fluctuating current assets. D. Long-term debt is less risky that short-term debt.
Which of the following is NOTa relevant cash flow and thus should not be reflected in the analysis of a capital budgeting project? a. Shipping and installation costs. b. Cannibalization effects. c. Opportunity costs. d. Sunk costs that have been expensed for tax purposes. e. Changes in net working capital. Please explain your answer for better understanding.
What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals? Discuss the principal limitations of the cash payback method for evaluating capital investment proposals. What information does the cash payback period ignore that is included by the net present value method? Why would the cash payback method understate the value of a project with a large residual value? What are the major disadvantages of the use of the net present value method of analyzing capital investment proposals? Give examples of qualitative factors that should be considered in a capital investment analysis related to acquiring automated factory equipment.
ABC Company funds its new investment project with only internal financing (NO external financing). Should this investment assess at a risk-free rate? Explain Please.
Why the payback method is often considered inferior to discounted cash flow in capital investment appraisal? Select one: a. It is more difficult to calculate b. It does not calculate how long it will take to recoup the money invested c. It only takes into account the future income of a project d. None of the option e. It does not take account of the time value of money
Suppose you finance a project partly with debt, you should neither subtract the debt proceeds from the required investment, nor would you recognize the interest and principal payments on the debt as cash outflows.Group startsTrue or FalseTrue Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.
The payback period has the following weaknesses as decision criterion for capital projects: Uses accounting incomeinstead of cash flows Ignores cash flows beyondthe payback period Does not take into accountthe time value of money yes yes yes no yes yes yes yes no yes no no
Why are interest charges not deducted when a projects cash flows are calculated for use in a capital budgeting analysis?
Which of the following statements indicate a disadvantage of using the discounted payback period for capital budgeting decisions? Check all that apply. The discounted payback period does not take the project’s entire life into account. The discounted payback period does not take the time value of money into account. The discounted payback period is calculated using net income instead of cash flows.
Which of the following statements concerning the payback period, is not true? a. The payback period measures the time that a project will take to generate enough cash flows to cover the initial investment.incorrect b. the payback period involves a simple method c. the payback period takes into account the time value of money d. the payback period ignores cash flows