Is each of the following statements true or false? Explain your answers briefly. a. Using the same
Question:
Is each of the following statements true or false? Explain your answers briefly.
a. Using the same risk-adjusted discount rate to discount all future cash flows ignores the fact that the more distant cash flows are often riskier than cash flows occurring sooner.
b. The cost of capital, or WACC, is not the correct discount rate to use for all projects undertaken by a firm.
c. If you can borrow all of the money you need for a project at 6 percent, the cost of capital for this project is 6 percent.
d. The best way to estimate the cost of debt capital for a firm is to divide the interest expense on the income statement by the interest-bearing debt on the balance sheet.
e. One reliable estimate of a privately held firm’s equity beta is the average of the equity betas of several publicly held competitors.
f. Nominal cash flows should always be discounted using a nominal discount rate.
Cost Of CapitalCost of capital refers to the opportunity cost of making a specific investment . Cost of capital (COC) is the rate of return that a firm must earn on its project investments to maintain its market value and attract funds. COC is the required rate of... Cost Of Debt
The cost of debt is the effective interest rate a company pays on its debts. It’s the cost of debt, such as bonds and loans, among others. The cost of debt often refers to before-tax cost of debt, which is the company's cost of debt before taking... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...
Step by Step Answer:
a True Using the same riskadjusted discount rate to discount all future cash flows ignores the fact that more distant cash flows are often riskier tha...View the full answer
