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When the net present value is negative, the internal rate of return is __________ the cost of capital.
greater than or equal to
shows the graphical relationship between a project’s NPV and cost of capital.
is the return that causes the NPV to be zero.
is the return that causes the NPV to be positive.
measures the firm and project’s required rate of return.
Which one of the following capital-budgeting evaluation techniques is based on finding a discount rate which causes the net present value to be zero?
net present value
internal rate of return
An examination of a firm’s opportunities, strengths, threats and weaknesses is often referred to by the following acronym:
Capital budgeting is
the process of identifying, evaluating, and implementing a firm’s investment opportunities.
the process of identifying, evaluating, and implementing a firm’s objectives.
the process of identifying, evaluating, and implementing a firm’s strategic plans.
the process of identifying, evaluating, and implementing a firm’s financing requirements.
The relevant cash flows of a project do not include which one of the following?
incremental after-tax cash flows
The stage in the capital budgeting process in which projects that are accepted must be executed in a timely fashion is called the _____________ stage.
The capital-budgeting process starts with which one of the following stages:
The corporate planning tool that develops project plans that fit well with the firm’s plans is often referred to by the following acronym:
When the net present value for a project is negative, the internal rate of return is _________ the cost of capital.
greater than or equal to
Corporate debt as a percentage of GDP grew from around ______ in 1970 to nearly ______ in 2007.
The internal and sustainable growth rate relationships suggest that there are three measurable influences on growth. These include all of the following except:
the firm’s capital structure
The initial impact of increasing the use of debt is to:
lower the cost of capital
lower the weight of the debt component
increase the cost of capital
lower the cost of retained earnings
Which of the following is a different concept from the other three?
required rate of return
cost of capital
net profit margin
When retained earnings are used up and new common stock is issued, we know that the cost of:
equity has increased
equity has dropped
equity is unaffected
both common and preferred stock are affected
The firm’s target capital structure is consistent with which of the following?
maximum earnings per share
minimum weighted average cost of capital
minimum cost of equity
A firm’s degree of combined leverage can be measured as degree of operating leverage __________ the degree of financial leverage:
What should be the relation between the target capital structure for a firm and the firm’s optimum capital structure?
Target and optimum capital structures should be the same.
Target capital structure is more conservative overall.
Target capital structure contains more debt.
Target capital structure excludes preferred stock.
The cost of debt:
is typically higher than the cost of preferred stock
must be adjusted to an after-tax cost
is higher than the cost of retained earnings
is the lowest component cost because corporations can deduct 70 percent of the interest expense
Of the components shown below, which is least likely to be of value in calculating the cost of preferred stock?
flotation costs per share
book value of a preferred share
dividends per share
initial market price per share
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