7.40%
-1.42%
0.0002016
Sum
0.3405116
Variance = (.3405116/(10-1)) = .0378345
A) 0.0450
B) 0.3400
C) 0.1935
D) 0.0375
(TCO A) Which of the following statements is false? (Points : 5)
The WACC can be used throughout the firm as the company-wide cost of capital for new investments that are of comparable risk to the rest of the firm and that will not alter the firm’s debt-equity ratio.
A disadvantage of the WACC method is that you need to know how the firm’s leverage policy is implemented to make the capital budgeting decision.
The intuition for the WACC method is that the firm’s weighted average cost of capital represents the average return the firm must pay to its investors (both debt and equity holders) on an after-tax basis.
To be profitable, a project should generate an expected return of at least the firm’s weighted average cost of capital.
number 2…
. (TCO F) Which of the following statements is correct? (Points : 5)
One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project’s full life, whereas IRR does not.
One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate.
One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project’s full life, whereas MIRR does not.
One advantage of the NPV over the MIRR method is that NPV discounts cash flows, whereas the MIRR is based on undiscounted cash flows.
Because cash flows under the IRR and MIRR are both discounted at the same rate (the WACC), these two methods always rank mutually exclusive projects in the same order.
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