Question 4 5 5 pts which of the following statements

Question 4
5 / 5 pts
Which of the following statements is correct?
The WACC as used in capital budgeting is an estimate of a company’s before-
tax cost of capital
The percentage flotation cost associated with issuing new common equity is
typically smaller than the flotation cost for new debt
The WACC as used in capital budgeting is an estimate of the cost of all the
capital a company has raised to acquire its assets
Correct!
There is an “opportunity cost” associated with using retained earnings, hence
they are not “free”

The WACC as used in capital budgeting would be simply the after-tax cost of
debt if the firm plans to use only debt to finance its capital budget during the
coming year
Question 5
5 / 5 pts
Which of the following statements is correct?
Question 6
0 / 5 pts
Which of the following statements is correct? Assume that the project being
considered has normal cash flows, with one outflow followed by a series of
inflows.
You Answered

A project’s regular IRR is found by compounding the cash inflows at the
WACC to find the terminal value (TV), then discounting this TV at the WACC
A project’s regular IRR is found by discounting the cash inflows at the WACC
to find the present value (PV), then compounding this PV to find the IRR
If a project’s IRR is greater than the WACC, then its NPV must be negative
Question 7
5 / 5 pts
Which of the following statements is correct? Assume that the project being
considered has normal cash flows, with one outflow followed by a series of
inflows.
The longer a project’s payback period, the more desirable the project is
normally considered to be by this criterion

The regular payback ignores cash flows beyond the payback period, but the
discounted payback method overcomes this problem
If a company uses the same payback requirement to evaluate all projects,
say it requires a payback of 4 years or less, then the company will tend to