Basic Science

1. ------------------------------------------------- If a typical U.S. club correctly estimates its WACC at a given point in time and then uses that very(prenominal) pecuniary rank of capital to evaluate all projects for the next 10 years, then the firm leave most likely ------------------------------------------------- serve well | | last riskier oer time, but its intrinsic value leave be growingd.| | | become less risky over time, and this will maximize its intrinsic value.| | | accept likewise many low-risk projects and too a few(prenominal) high-risk projects.| | | become more risky and similarly ache an increasing WACC.  Its intrinsic value will not be maximized.| | | continue as before, because there is no evidence to take do its risk position or value to change over time as a egress of its use of a single cost of capital.| 1. ------------------------------------------------- Which of the following statements is redress? --------------- ---------------------------------- Answer | | When reckon the cost of debt, a company unavoidably to adjust for taxes, because hobby payments are deductible by the paying(a) corporation.| | | When calculating the cost of prefer stock, companies must adjust for taxes, because dividends salaried on preferred stock are deductible by the paying corporation.

| | | Because of tax effects, an increase in the risk-free treasure will have a greater effect on the after-tax cost of debt than on the cost of habitual stock as measured by the CAPM.| | | If a companys of import increases, this will increase the c ost of fairness used to lead the WACC, but ! only if the company does not have large retained earnings to take care of its equity backing and hence must issue newly stock.| | | Higher flotation costs reduce investors expected returns, and that leads to a reduction in a companys WACC.| 2 points   Question 22 1. -------------------------------------------------   -------------------------------------------------...If you want to get a rise essay, order it on our website: OrderCustomPaper.com

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