Higher-cost capital to replace lower-cost capital

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Reference no: EM132046017

1. Assume you will receive a payment of 30,000 per year for 25 years first payment made next year. Assume interest rate is 12%. What is the present value?

2. "More corporate investments (due to a higher retention ratio) would actually destroy value for shareholders if the ROE from these investments is lower than the require rate of return, Rs." True or false?

3. "Increasing the debt ratio by issuing new debt to buy back stocks is effectively using higher-cost capital to replace lower-cost capital." True or false?

Reference no: EM132046017

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