Questions about Costs of Capital. Which of the following is true: 1. Cost of Equity is lower than cost of debt because equityholders face higher risk than debtholders II. The expected cash flows from the projects that have higher uncertainty normally should be discounted at a lower rate. III. Rational investors require to be compensated for bearing higher risks by requiring higher expected return Oll only OI only OI and III only II and III only Ill only

QUESTION #1: Which of the following is a disadvantage of using the IRR method of capital budgeting over other types:   A- IRR does not consider the time and value of money.   B- IRR assumes reinvestment of project cash flows at the same rate as the IRR   C- IRR ignores the prudent simplicity of paybacks   D- None of the above   QUESTION #2: The net present value (NPV) of an investment is___________.   A- The present value of all benefits (cash inflows)   B- The present value of all costs (cash outflows) of the project   C- The present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project   D- The present value of all benefits (cash outflows) minus the present value of all costs (cash inflows) of the project

Question 5 Which of the following is not a pro of DCF valuation?: It's very robust to assumptions about the terminal value. It's insulated from market aberrations. It's especially good for larger, stabler companies as it's based on projected cash flows. It allows for a flexible sensitivity analysis.

Forecasting risk can be defined as the possibility that _____ will lead to incorrect decisions. a. the inclusion of opportunity costs b. erosion c. errors in projected cash flows d. the exclusion of sunk costs e. net working capital costs