If an investment project will positively affect the cash flows of other products the firm currently sells (increasing the flows), this is cannibalization and therefore should be counted in the investment project’s expected cash flows. tRUE OR FALSE

A disadvantage of using the payback period to compare investment alternatives is that it a. Ignores cash flows beyond the payback period. b. Cannot be used to compare alternatives with different initial investments. c. Cannot be used when cash flows are not uniform. d. Involves the time value of money. e. Cannot be used if a company records depreciation.

Which of the following statements is (are) FALSE? Select one or more alternatives: When sales of a new product displace sales of an existing product, the situation is often referred to as cannibalisation. If the IRR of a project is equal to the cost of capital, the NPV will be zero. It is reasonable to assume that a business has a terminal growth rate higher than the long-term growth rate of the economy. The terminal growth rate is the growth rate used to estimate the terminal value of a business. Interest expenses from borrowing should be subtracted from EBIT to estimate free cash flow to firm.

Which of the following contentions concerning the static trade off theory of capital structure are true? (i) The optimal capital structure depends upon both the value of the tax shield and on the costs of financial distress. (ii) Costs of financial distress decrease as the amount of debt in the capital structure increases. (iii) The value of the tax shield increases as the amount of debt in the capital structure decreases. (iv) The cost of financial distress does not depend upon the nature of the firm's assets. O Only (i) and (iv) are true. O Only (iv) is true. O Only (i) is true. None are true. O Only (ii) and (iii) are true.

Explain the concept of intrinsic value, and critically appraise whether firms that have higher free cash flows should also have a higher value.

If a firm must forgo a cash flow, not leasing an owned building for example, in order to accept some investment project, are the lost cash flows included in the analysis?

1) What is the company's WACC? 2) Should the company take the projects? Assume that the projects have the same risk as an average project for your firm. 3) If one project is depended on the other in a way that the company can only take both projects, should it take it?

Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky. O If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative. O If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero. O There is no necessary relationship between a project's IRR, its WACC, and its NPV. O When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVS when the cost of capital is relatively high. O If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.

How can I explain these?

The rationale for funds transfer pricing is that there are: Group of answer choices D. Less chances for controversy in organizations B. Controls that can be exercised over the dynamics of yield curves C. Controllable interest rate risks removed from business results A. Economies of scale in managing interest rate risk