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A project has an initial cost of $68,300 and cash flows of $38,700, $102,300, and -$18,100 for Years 1 to 3, respectively. If the required rate of return for this investment is 8.7 percent, should you accept it based solely on the internal rate of return rule? Why or why not?
A) Yes; because the IRR exceeds the required return
B) Yes; because the IRR is a positive rate of return
C) You cannot apply the IRR rule in this case because there are multiple IRRs.
D) No; because the IRR is a negative rate of return
E) No; because the IRR is less than the required return
An example of diversifiable risk that a financial manager should ignore when analyzing a project's risk would include: Commodity price changes, Labor costs, Overall stock price fluctuations
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What is the Macaulay duration of a 5.6 percent coupon bond with ten years to maturity and a current price of $1,057.70? What is the modified duration?
Then calculate the debt ratio of a service-oriented company, such as Cognizant Technology Solutions. Based on what you learned about leverage in this chapter, what would account for the difference in their debt ratios?
Winter's Toyland has a debt-equity ratio of 0.58. The pre-tax cost of debt is 8.1 percent and the required return on assets is 15.1 percent. What is the cost of equity if you ignore taxes?
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