7. assuming a tax rate of 25% how will annual deprciation of 350,000 effect a pr

Question

7. assuming a tax rate of 25% how will annual deprciation of 350,000 effect a projects relevant cash flows

a. decrease cash flows by 87,500

b. increase cash flows by 87,500

c. reduce cash flows by 350000

d.  increase cash flows by 350000

e. have no effect since depreciation is not a cash expense

8. although debt is usually the cheapest component of capital, it cannot be used to exxess because:

a. the risk of the firm may increase and thus drive up the cost of all sources of financing

b. underwriting costs may change

c. the firms stock price may icnrease nad raise the cost of equity financing

d. investors may be more reluctant to buy shares

e. interest rates may change

Explanation / Answer

Dear Student Thank you for using Chegg Please find below the answer Statementshowing Computations Paticulars Amount Q7 Annual depreciation            350,000.00 Tax rate 25% Tax savings on depreciation =350,000 * 25%              87,500.00 b. increase cash flows by 87,500 Q8 a. the risk of the firm may increase and thus drive up the cost of all sources of financing

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