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1) Since a firm's borrowing costs are always less than the cost of raising capital by issuing new shares of stock (because of the priority of claims and the risk/return tradeoff), the firm should always borrow as much as possible in order to minimize their overall cost of raising money (their WACC=weighted average cost of capital
True
False
2) A firm is considering a capital investment project that will require an immediate investment of $1,000. The project is expected to generate the following cash inflows: Year 1: $300; Year 2: 400; Year 3: $500. Assuming the firm's risk-adjusted required rate of return for this project is 5%. What is the NPV (net present value) of this project, rounded to the nearest whole dollar?
$80
$200
$152
$76
3) Which of the following methods for evaluating capital investment projects does not consider all expected future cash inflows?
1. NPV; 2. IRR; 3. PB (payback) 4. dPB (discounted payback)
3 and 4 only
1 and 2 only
1 only
3 only
2 and 3 only
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The Federal Reserve Board has started shrinking its balance sheet as a part of policy normalization.
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Six years ago, Goodwynn & Wolf Incorporated sold a 17-year bond issue with a 12% annual coupon rate and a 7% call premium. Today, G&W called the bonds. The bonds originally were sold at their face value of $1,000. Compute the realized rate of return ..
What is the NPV of the decision to keep the old machine? What is the IRR of the decision to keep the old machine?
What effect would these policies have on the company's cash conversion cycle?
Primary market transactions may occur on an exchange or on the over-the-counter market. Relatively risky bonds are called junk bonds.
Base your recommendation on the net present value of the outlay using? Cautionary's 8?% cost of capital.
On Monday morning, an investor takes a long position in a pound futures contract thatmatures on Wednesday afternoon.
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