Why do come companies prefer to use discounting in their capital investment decisions?  What is a risk associated with this discounting model?

Q: Explain the use of real and nominal discount rates in discounting cash flows. Which is used more…

A: Real Discount Rates A real interest rate is the interest rate that takes inflation into account.…

Q: What is the risk-return tradeoff that arises when . firm manages its working capital? Give tangible…

A: Financial risk is referred as the possibility or chance of losing the investment, basically an…

Q: How does sales stability affect the target capital structure?

A: Target capital structure: Target capital structure is defined as the combination of debt, preferred…

Q: Explain how a firm's stock and trade debtors management problems can be linked to a capital…

A: Capital budgeting is the procedure by which a firm decides whether the investment should be made in…

Q: What is the main disadvantage of discountedpayback? Is the payback method of any realusefulness in…

A: The discounted payback method is a method of evaluating the payback period of the investment carried…

Q: how a failed capital project may shape the future strategy of investment capital.

A: Introduction: Capital projects are nothing but a long term capital intensive initiative aimed at…

Q: Which of the following is not a determinant of investment? a) The efficiency of capital equipment…

A: To increase capital assets, business do investments in property, fixed assets, financial market,…

Q: Why should a firm's investments always exceed its cost of capital?

A: The main aim behind any investment is to generate returns for the company. These projects help the…

Q: What is capital rationing? What types of firms might encounter capital rationing?

A: A plan adopted by any organization to limit the several new projects or investments in any…

Q: Evaluate the effect of gearing on cost of capital and firm value taking into consideration the…

A: Answer

Q: Use the DuPont equation to show how working capital policy canaffect a firm’s expected ROE.

A:

Q: What is opportunity cost and why is it an important concept in the capital budgeting process? The…

A: I am answering the first question as per bartleby guidelines. Please re-submit the remaining…

Q: Should firms focus on book value or market value capital structures? How would the calculatedWACC be…

A: In all actuality, the organization will have the option to utilize the capital structure dependent…

Q: Why should the financial manager include opportunity cost but ignore sunk costs when evaluating a…

A: Capital investment is defined as an amount, which used to get invested in the corporation for…

Q: What is the difference between capital budgeting decisions and capital structure decisions? Which of…

A: Capital budgeting: Capital budgeting is the process of evaluating different investment projects that…

Q: What factors can lead to an increasing marginal cost of capital?How might this affect capital…

A: Following are the factors that lead to an increasing marginal cost of capital: The breakpoint of…

Q: What are the principal objections to the use of the average rate of return method in evaluating…

A: Average rate of return: Under this method, the average net income is used in evaluating the capital…

Q: Which combination of investment policy and financing policy related to working capital provides the…

A: A relaxed current asset investment policy is one under which relatively large amounts of current…

Q: The cost of capital is sometimes referred to as the discount rate or the opportunity cost. What it…

A: Cost of capital is very important in capital budgeting decision making.

Q: why is a risk analysis important to the capital investment decision making process?

A: Risk is the uncertainty or possibility of loss due to the decision in investment process. Of all the…

Q: What risks do common stockholders take that other suppliers of long term capital do not? Discuss the…

A: Common stockholders are the real owner of a company because these are the people who invest in the…

Q: The calculation of a hurdle rate when looking capital expenditures involves looking at what…

A: Generally companies take up new projects only when the project passes the hurdle rate (HR). As the…

Q: What are the Factors That Complicate Capital Investment Analysis

A: Note: We’ll answer the first question since the exact one wasn’t specified. Please submit a new…

Q: What is one classification scheme that firms often use to obtain risk-adjusted costsof capital?

A: The question is based on the concept of risk-adjusted costs of capital with consideration of…

Q: How can one distinguish between a relaxed butrational working capital policy and a situation inwhich…

A: Working Capital is defined as the capital rolling on a daily basis in the Company. It is the…

Q: What capital budgeting rule is a simple but imperfect attempt to solve the capital rationing…

A: Answer: Option c.  Payback rule   Explanation: Payback rule is a very simple method which is used to…

Q: In capital budgeting decisions, are there reasons a company might choose to take a project that was…

A: Net present value (NPV) is value of all future cash flows discounted to the present value by either…

Q: What is a capital investment and why do companies need to evaluate whether to make the investment or…

A: Capital Investment:-It is an investment that a company made to purchase its fixed assets or…

Q: What effect would a decreased cost of capital have on a firm's future investments?

A: Cost of capital of the firm is its weighted average cost of capital. It considers the weighted…

Q: Can you write a short essay about the effects of the risk of investment projects on the capital…

A: Capital investment decision means deciding the best investment alternative in which investment…

Q: What are the two types of risk according to the Capital Asset Pricing Model? Which of the two types…

A: The Capital Asset Pricing Model (CAPM) describes the link between systematic risk and expected…

Q: In capital budgeting, sensitivity analysis is used to: O determine whether an investment is…

A: Solution: In capital budgeting, sensitivity analysis is used to "see how a decision would be…

Q: What is the payback method of analyzing capital investments?

A: Formula: Payback period = Initial Investment / annual cash inflows

Q: What is the relationship between return on capital investment and the risk associated with the…

A: Return on invested capital is referred as an amount of the funds of the corporation, which helps in…

Q: When considering the discount rate to use for discounting cash flows of a company project, we should…

A: Most common sources of finance are debt and equity.

Q: Discuss the strength and weaknesses of cash-flow based valuation models. How do variations in the…

A: Cash flow based valuation models  Strengths : DCF depends, unlike most valuation models, on inflows…

Q: Why would an investor prefer the payback period to other methods of capital investment appraisal

A: The investor prefers the payback period to other methods of capital investment appraisal because in…

Interest Rate

When you deposit your money with the bank, the deposit earns you some extra money at the end of the specific period – something more than what you deposited. That amount of money that the bank pays you for keeping the money with the bank is the “interest” and the percentage at which the bank pays you for your amount is called the “interest rate”.