Why is the compressed adjusted present value approachappropriate for situations with a changing capital structure?

Q: Which of the following statements regarding capital budgeting analysis is correct?     NPV assumes…

A: Capital budgeting is the process of making investment decisions by a company in which different…

Q: Why might the weights of capital be different depending on whether book values,market values, or…

A: The weights of the capital should be different for book values of a equity, market value of a…

Q: Why is capital cost allowance used instead of depreciation expense in capital budgeting?

A: Capital cost allowance: is an annual deduction which can be claimed on depreciable asset while…

Q: What's the difference between the capital asset pricing model and modified capital assset pricing…

A: Capital Asset Pricing Model CAPM describes the relationship between systematic risk and expected…

Q: Would the NPVs change if the cost of capitalchanged?

A: The NPV (Net Present Value) is entirely based on the value of the weighted average cost of capital…

Q: Explain how a change in interest rates in the economy would beexpected to affect each component of…

A: Introduction:   The interest rate is the percentage value of the total borrowed amount that a…

Q: Explain how the cost of capital serves as a screening tool when using the net present value method.

A: Definition: Net present value method: The net present value method is the method that is used to…

Q: Provide a brief overview of capital structure effects.  Be sure to identify the ways in which…

A: Answer: The effect of value of capital structure depends on the effect on the debt on weighted…

Q: Why is the adjusted present value approach appropriate forsituations with a changing capital…

A: Capital structure is the distribution of various sources of funding to the organization like debt,…

Q: xplain how is cost of capital used to make financial decisions? Why do you think funds generated…

A: In capital budgeting, the cost of capital is used to select projects with higher profitability so…

Q: the Capital Asset Pricing M

A: Explanation : In simple words, Capital asset pricing model for valuing the cost of capital contains…

Q: What is capital rationing, what conditions lead toit, and how should it be dealt with?

A: Capital budgeting is a process in which capital projects are assessed in terms of their viability…

Q: Discuss the main features of Capital Asset Pricing Model (CAPM) and comment on the validity of the…

A: The capital asset pricing model is a risk adjusted model which will be helpful in finding the…

Q: why is Capital Asset Pricing Model relevant

A: The Capital Asset Pricing Model, popularly known as CAPM, is an important model that is often used…

Q: What is the difference between VaR as it has been traditionally measured and stressed VaR? Explain…

A: A definition of value at risk is as follows: Value at Risk (VaR) is a metric that estimates the size…

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: In general terms, what is the Capital AssetPricing Model (CAPM)? What assumptions weremade when it…

A: CAPM: The capital asset pricing model (CAPM) is a method utilized to determine a hypothetically…

Q: In the case of the net present value technique, explain how the cost of capital is used as a…

A: The question tells about the net present value technique and  how the cost of capital is used as a…

Q: What is the crossover rate, and how does its value relative to the cost of capital determinewhether…

A: Crossover rate is a rate where net present values of two mutually exclusive projects are equal to…

Q: What information does the payback convey that is absent from the other capitalbudgeting decision…

A: Payback period method is a traditional method used in capital budgeting decisions which is used to…

Q: The cost of capital is a hurdle rate. Is this statement true? Why or why not?

A: The question is based on the concept of minimum required rate for any project . Hurdle rate is the…

Q: acroprudential measures overlap?

A: Assessing their effectiveness is complicated by selection bias; countries which change their…

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 is the significance of the FCF (Free Cash Flow) in the area of valuation?

A: Cash flows refer to the cash expenditure and cash receipt of the business over a specific time…

Q: What are the common internal controls in place for capital expenditure cycle? with explanations

A: Internal control is an important part of every organization. It helps in maintaining the efficiency…

Q: Payback period is one of the nondiscounting models used in capital investment decisions.  What are…

A: Payback period refers to the period in which the initial investment is recovered.

Q: Derivation of capital asset pricing model

A: The Capital Asset Pricing Model (CAPM) relates the returns on individual assets or entire portfolios…

Q: Explain how the cost of capital may be used as a screening tool when applying the net present value…

A: Net present value: Net present value is a the increment return from an investment after covering the…

Q: Which types of investments are valued at amortized cost? Explain the rationale for this accounting.

A:

Q: Is it ever appropriate or acceptable to use the payback method of evaluating capital investment…

A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…

Q: How can the Calculation of capital-recovery cost (with return)be done?

A: Capital Recovery Cost: When a company purchases or invest in some assets for the business…

Q: What does the empirical evidence say about capital structure theory? What are the implications…

A: Introduction: Capital structure relates to financing of the overall activities and development of a…

Q: As per which approach of the capital structure, the overall cost of capital is unchanged because of…

A: As per the net operating income approach, the firm's overall cost of capital is not affected by the…

Q: Explain the difficulties for determining the cost of capital in the short term decision making.

A: Introduction: Capital structure relates to financing of the overall activities and development of a…

Q: Why should both quantitative and qualitative factors be considered in capital investment decisions?

A: The Investment commitment on any project is based on many factors which are classified as…

Q: What is the relationship between a discount rate (or IRR) and a capitalization rate? What causes…

A: Introduction: The discount rate is nothing but a rate that reduces potential cash flows in order to…

Q: Define the term, the return on invested capital (RIC)?

A: All investments are made keeping focus on the expected returns that can be generated from it. The…

Q: Explain the term Return on Invested Capital?

A: The formula used to compute return on invested capital:

Q: What is Capital gearing and how might it be calculated?

A: Meaning of Capital Gearing  Capital gearing is the ratio between total equity and total debt ( Fixed…

Q: When calculating WACC, what capital is excluded and why?

A: when the company has multiple sources of finance in the company, then it is required to calculate…

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…