29. When firms develop a WACC for individual projects based on the cost of capital for...
29. When firms develop a WACC for individual projects based on the cost of capital for other firms in similar lines of business as the project, the firm is utilizing a: a. subjective risk approach b. pure play approach c. divisional cost of capital approach d. capital adjustment approach
Homework Answers
Option 'B' is correct
Pure Play approach.
When Firms develop a WACC for individual projects based on the cost of capital for other firms in similar lines of business as the project, the firm is utilizing a "Pure Play Approach"
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29. When firms develop a WACC for individual projects based on
the cost of capital for...
9. Because the WACC varies with the use of funds rather than the source of funds,...
9. Because the WACC varies with the use of funds rather than the source of funds, some firms evaluate new projects by sorting projects into risk classes, and add or subtract adjustment factors from the WACC. This approach is called the A. DuPont approach. B. pure play approach. C. divisional approach. D. subjective approach.
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Firms WACC can be used for any firms project projects with the average risk of the firm a divisional project for diversified firms
True or False question The after-tax cost of debt generally increases when a firm's bond rating...
True or False question The after-tax cost of debt generally increases when a firm's bond rating decreases. The weighted average cost of capital for a firm is the discount rate which the firm should apply to all of the projects it undertakes. Assigning discount rates to individual projects based on the risk level of each project may cause the firm's overall weighted average cost of capital to either increase or decrease over time. Other things being equal, the weighted average...
Suppose a firms estimates its WACC to be 15%. Should the WACC be used to evaluate...
Suppose a firms estimates its WACC to be 15%. Should the WACC be used to evaluate all of its potential projects, even it they vary in risk? If not, what might be "reasonable" costs of capital for average-, high-, and low-risk projects? Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: risk-free rate = 3.20%; required return on the market = 15.75%; and beta=0.86. Based...
1. The weighted average cost of capital (WACC) is calculated as the weighted average of cost of component capital, i...
1. The weighted average cost of capital (WACC) is calculated as the weighted average of cost of component capital, including debt, preferred stock and common equity. In general, debt is less expensive than equity because it is less risky to the investors. Some managers may intend to increase the usage of debt, therefore increase the weight on debt (Wd). Do you think by increasing the weight on debt (Wj) will reduce the WACC infinitely? What are the benefits and costs...
29. If a firm applies its overall cost of capital to all its proposed projects, then...
29. If a firm applies its overall cost of capital to all its proposed projects, then the divisions within the firm will tend to A) receive more B) avoid risky projects so that they will receive more funding. C) become less risky over time based on the projects that are accepted. D) have equal probabilities of receiving funding for their projects. . E) propose less risky projects than if separate discount rates were applied funding if they represent the riskiest...
PLEASE DETAIL THE ANSWERS Assume that BF, Inc., has 10,000 bonds outstanding, paying a 5.6 percent...
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Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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Suppose your firm has decided to use a divisional WACC approach to analyze projects. The firm...
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9. Because the WACC varies with the use of funds rather than the source of funds, some firms evaluate new projects by sorting projects into risk classes, and add or subtract adjustment factors from the WACC. This approach is called the A. DuPont approach. B. pure play approach. C. divisional approach. D. subjective approach.
Suppose a firms estimates its WACC to be 15%. Should the WACC be used to evaluate all of its potential projects, even it they vary in risk? If not, what might be "reasonable" costs of capital for average-, high-, and low-risk projects? Scanlon Inc.'s CFO hired you as a consultant to help her estimate the cost of capital. You have been provided with the following data: risk-free rate = 3.20%; required return on the market = 15.75%; and beta=0.86. Based...
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