A firm's cost of capital indicates A firm must earn [Select] provided. [Select] the risk of the firm's assets. to compensate investors for the financing they hav The required return for a firm is the same as [Select]
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- A firm's overall cost of capital is Select one :. A. Best measured by the cost of capital of the riskiest projects that the firm is working on B. a weighted average of the costs of capital for the collection of individual projects that the firm is working on C. equal to its cost debt d. None of theseIf the firms earns a higher rate of return on its investments than the required rate of return then it is called a_____ a. Normal firm b. Growth firm c. Decline firm d. Regular firmIf the firms earns rate of return on its investments equal to the required rate of return it is called O a. Normal firm O b. Growth firm O c. Decline firm Od. Slow firm
- A working capital financing policy that finances almost all assets with long-term capital a. Restricted Policy b. Dividend Policy c. Hedging Policy d. Relaxed Policy It is generally assumed that the greater the firm’s net working capital, the higher its risk. True Falsed) The cost of capital is sometimes referred to as the discount rate or the opportunity cost. What role does it play in the long-term investment decisions of any firm?For a firm, the Optimal Capital Structure means to choose between equity and bonds so to a. Maximize funding needs b. Minimize the firm financing costs c. Minimize the firm available funding d. Maximize revenues
- The relationship between WACC and investors' required rates of return The required rate of return of an investor is the rate of return that an investor demands to purchase a firm’s stocks or bonds and thus provide funds for capital investment. Therefore, required returns from the investors’ point of view correspond to the required returns or the weighted average cost of capital (WACC) from the firm’s point of view. Indicate in the following table whether each of the statements about WACC and the required rates of return of investors is true or false. Statement True False Flotation costs increase the cost of newly issued stock compared to the cost of the firm’s existing, or already outstanding, common stock or retained earnings. The firm’s cost of debt is what an investor is willing to pay for the firm’s stock before considering flotation costs. The amount that an investor is willing to pay for a firm’s bonds is inversely related to the…1. Explain the profitability-risk trade-off of alternative levels of working capital balances. 2. Explain the profitability-risk trade-off of alternative methods of financing a given working capital investment. 3. Discuss the profitability versus risk trade-offs associated with alternative levels of working capital investment. 4. A. which of the following working capital financing policies subjects the firm to a greater risk?i. Financing permanent current assets with short-term debtii. Financing fluctuating current assets with long-term debtB. Which policy will produce the higher expected profitability?kindly help with these questions 1. In _____ approach, the capital design choice is pertinent to the valuation of the firm. a. Net gain b. Net working pay c. Customary d. Mill operator and Modigliani 2. A basic presumption of the net working pay (NOI) way to deal with valuation is: a. that obligation and value levels stay unaltered. b. that profits increment at a steady rate. c. that ko stays steady paying little heed to changes in influence. d. that interest cost and duties are remembered for the estimation.
- 1. Define and identify the components of:a. Operating cycleb. Cash conversion cycle2. What is the impact of longer cash conversion cycles on a firm’s working capital needs?3. Explain the profitability-risk trade-off of alternative levels of working capital balances.4. Explain the profitability-risk trade-off of alternative methods of financing a given working capital investment.5. Why does the typical firm need to make investments in working capital?6. Discuss the profitability versus risk trade-offs associated with alternative levels of working capital investment.7. A. which of the following working capital financing policies subjects the firm to a greater risk?i. Financing permanent current assets with short-term debtii. Financing fluctuating current assets with long-term debt B. Which policy will produce the higher expected profitability?8. Which of the following statement regarding value of a firm is correct? Select one: a. Firm value is created when the firm earns a return on its investment equal to the cost of capital. b. Firm value is created when the firm earns a return on its investment in excess of the cost of capital. c. Firm value is created when the firm earns a loss on its investment equal to the cost of capital. d. Firm value is created when the firm earns a return on its investment less than the cost of capital.-n Weighted average cost of capital (WACC) is the: O A. O B. O C. O D. O E. Average IRR of the firm's current projects. Required rate of return on a firm. Cost of utilizing debt financing. Average rate of return needed to increase the value of a firm's stock. Cost of obtaining equity financing.