The Net Present Value decision technique uses a statistic denominated in years.
ID: 2745273 • Letter: T
Question
The Net Present Value decision technique uses a statistic denominated in years. currency a percentage time lines Which of these statements is true regarding divisional WACC? Using a divisional WACC vs a WACC for the firm's current operations will result in quite a few incorrect decisions. Using a simple firmwide WACC to evaluate new projects would give an unfair advantage to projects that present more risk than the firm's average beta. Using a sample firmwide WACC to evaluate new projects would give an unfair advantage to projects that present less risk than the firm's average beta. Using a firmwide WACC to evaluate new projects would have no impact on projects that present less risk than the firm's average beta. All capital budgeting techniques render the same investment decision use the same measurement units. include all crucial information. exclude some crucial information. WC Inc. has a $10 million (face value). 10 year bond issue selling for 99 percent of par that pays an annual coupon of 9 percent. What would be WC's before-tax component cost of debt? 9.00% 9.10% 9.16% 18.32% A company has a beta of 3.75. If the market return is expected to be 20 percent and the risk-free rate is 9.5 percent, what is the company's required return? 33.250% 39.375% 48.875% 55.625%Explanation / Answer
2) currency - NPV is the present value of all discounted cash flows considered
2) The average WACC of the firm will be lesser than the WACC of the risky projected. Since the discounting is done at the lower average WACC, it would tend to inflate the NPV of the risky project
4) Each technique has its merits and demerits. Payback does not account for the net cash value added while NPV does not consider how early a project breaks even
The face value can be ignored. Let us assume the face value or future value = 100
PV = -99
N = 10 years
Coupon = 9% of 100 = 9
Using rate function in EXCEL or Financial calculator we get the rate as 9.16%
3) 9.16%
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