Which one of the following statements is correct?
Question 5
Which one of the following statements is correct?
1) The payback period ignores the time value of money.
2) A longer payback period is preferred over a shorter payback period.
3) The payback rule states that you should accept a project if the payback period is less than one year.
4) The payback rule is biased in favor of long-term projects.
5) The payback period considers the timing and amount of all of a project's cash flows.
Question 6
A firm has $6 Billion in debt outstanding with a yield to maturity of 6%. The firm pays taxes at the rate of 38%. What is the firm's effective after-tax) cost of debt?
Homework Answers
Option a is correct option pay back period ignores time value of
money.
Weakness of Pay Back Period
1. doesn’t consider cash flows after Payback period.
2. It does not include time value of money.
period is less than one year. 04) The payback rule is biased in favor of long-term...
period is less than one year. 04) The payback rule is biased in favor of long-term projects The payback period considers the timing and amount of all of a project's cash 5) flows. Question 6 (1 point) A firm has $6 Billion in debt outstanding with a yield to maturity of 6 %. The firm pays taxes at the rate of 38 %. What is the firm's effective (after-tax) cost of debt? [Enter your answer as a percentage rounded to...
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with...
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. The longer a project's payback period, the more desirable the project is normally considered to be by this criterion. b. One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money. c. If a project's payback is positive, then the project...
15) Which of the following ratios is most useful for examining 'financial leverage? a) Return on...
15) Which of the following ratios is most useful for examining 'financial leverage? a) Return on equity (ROE) b) Return on assets (ROA) c) Asset turnover ratio d) Debt ratio e) Current ratio 14) A company is considering demolishing existing buildings (on a site which is already owned by the company) and replacing them with a brand new manufacturing plant. Which ONE of the following should NOT be treated as an incremental cash flow when deciding whether to invest in...
Which of the following statements is correct? A project's discounted payback period (DBP) is normally shorter...
Which of the following statements is correct? A project's discounted payback period (DBP) is normally shorter than its traditional payback period (PB) because DPB accounts for the time value of money, whereas PB does not. To compute the NPV for a project, the firm's required rate of return must be known. To compute a project's internal rate of return (IRR), the firm's required rate of return is not used because the IRR is the discount rate where the project's NPV...
Your firm is considering a project with the following cash flows. The firm has a weighted...
Your firm is considering a project with the following cash flows. The firm has a weighted average cost of capital of 6%. The firm usually accepts projects that payback in 4 years or less. Using what you know about payback period, which of the following statements is true about the firm's project selection? Year CF 0 -$2,000,000 1 $800,000 2 $600,000 3 -$200,000 4 $1,800,000 5 $400,000 6 $300,000 Year CF 0 $2,000,000 1 $800,000 2 $600,000 3 -$200,000 4...
Which one of these statements related to discounted payback is correct? Multiple Choice Payback is a...
Which one of these statements related to discounted payback is correct? Multiple Choice Payback is a better method of analysis than discounted payback. Discounted payback is used more frequently in business than payback. Discounted payback does not require a cutoff point. Discounted payback is biased towards short-term projects The discounted payback period increases as the discount rate decreases.
Question 7 (1 point) Calculate the net debt of a firm with a market capitalization (market...
Question 7 (1 point) Calculate the net debt of a firm with a market capitalization (market value of equity) of $65 Billion, market value of debt of $10 Billion, and $4 Billion in cash and equivalents. [Note: Enter your answer in Billions; for example, if you calculate the net debt to be $10 Billion, then enter just 10 in the answer box. Your Answer Answer Question 8 (1 point) In which one of the following situations would the payback method...
3. Which one of the following statements is TRUE about a project's net present value? A....
3. Which one of the following statements is TRUE about a project's net present value? A. When choosing between projects, a company should take on the project with the lowest net present value B. When deciding to accept or reject a project, a company should reject the project if its net present value is positive C. A project's net present value provides the payback period of an investment B. When deciding to accept or reject a project, the project's net...
Question 22 of 25 1 Points Which of the following is TRUE? i. We can evaluate...
Question 22 of 25 1 Points Which of the following is TRUE? i. We can evaluate two projects with different timing of cash flows using the IRR rule, ll. The hurdle rate of the IRR rule is arbitrary (random), H. The payback period is the time until the sum of the present value of future cash flows equals the initial investment. I. IRR rule ignores distant cash flows while the NPV rule does not O A. II, III, IV OB.Iv...
Question 11 (0.2 points) A firm has $6 Billion in debt outstanding with a yield to...
Question 11 (0.2 points) A firm has $6 Billion in debt outstanding with a yield to maturity of 8%. The firm pays taxes at the rate of 27%. What is the firm's effective (after-tax) cost of debt? [Enter your answer as a percentage rounded to two decimal places.] Your Answer: Answer units View hint for Question 11 Question 12 (0.2 points) A firm has a market capitalization (market value of equity) of $11 Billion and net debt of $3 Billion....
period is less than one year. 04) The payback rule is biased in favor of long-term projects The payback period considers the timing and amount of all of a project's cash 5) flows. Question 6 (1 point) A firm has $6 Billion in debt outstanding with a yield to maturity of 6 %. The firm pays taxes at the rate of 38 %. What is the firm's effective (after-tax) cost of debt? [Enter your answer as a percentage rounded to...
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. The longer a project's payback period, the more desirable the project is normally considered to be by this criterion. b. One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money. c. If a project's payback is positive, then the project...
15) Which of the following ratios is most useful for examining 'financial leverage? a) Return on equity (ROE) b) Return on assets (ROA) c) Asset turnover ratio d) Debt ratio e) Current ratio 14) A company is considering demolishing existing buildings (on a site which is already owned by the company) and replacing them with a brand new manufacturing plant. Which ONE of the following should NOT be treated as an incremental cash flow when deciding whether to invest in...
Your firm is considering a project with the following cash flows. The firm has a weighted average cost of capital of 6%. The firm usually accepts projects that payback in 4 years or less. Using what you know about payback period, which of the following statements is true about the firm's project selection? Year CF 0 -$2,000,000 1 $800,000 2 $600,000 3 -$200,000 4 $1,800,000 5 $400,000 6 $300,000 Year CF 0 $2,000,000 1 $800,000 2 $600,000 3 -$200,000 4...
Which one of these statements related to discounted payback is correct? Multiple Choice Payback is a better method of analysis than discounted payback. Discounted payback is used more frequently in business than payback. Discounted payback does not require a cutoff point. Discounted payback is biased towards short-term projects The discounted payback period increases as the discount rate decreases.
Question 7 (1 point) Calculate the net debt of a firm with a market capitalization (market value of equity) of $65 Billion, market value of debt of $10 Billion, and $4 Billion in cash and equivalents. [Note: Enter your answer in Billions; for example, if you calculate the net debt to be $10 Billion, then enter just 10 in the answer box. Your Answer Answer Question 8 (1 point) In which one of the following situations would the payback method...
Question 22 of 25 1 Points Which of the following is TRUE? i. We can evaluate two projects with different timing of cash flows using the IRR rule, ll. The hurdle rate of the IRR rule is arbitrary (random), H. The payback period is the time until the sum of the present value of future cash flows equals the initial investment. I. IRR rule ignores distant cash flows while the NPV rule does not O A. II, III, IV OB.Iv...
Question 11 (0.2 points) A firm has $6 Billion in debt outstanding with a yield to maturity of 8%. The firm pays taxes at the rate of 27%. What is the firm's effective (after-tax) cost of debt? [Enter your answer as a percentage rounded to two decimal places.] Your Answer: Answer units View hint for Question 11 Question 12 (0.2 points) A firm has a market capitalization (market value of equity) of $11 Billion and net debt of $3 Billion....
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