PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Chapter 28, Problem 26PS
Summary Introduction
To discuss: Some examples of average cost of capital make sense and does not make sense to calculate return on capital.
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What is the effect of an increase in the cost of capital on the payback period, profitability index and accounting rate of return?
Payback period will increase, Profitability will decrease, and Accounting rate of return will increase.
Payback period will not change, Profitability will decrease, and Accounting rate of return will not change.
Payback period will not change, Profitability will increase, and Accounting rate of return will decrease.
Payback period will decrease, Profitability will increase, and Accounting rate of return will decrease.
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The weighted average cost of capital up to the point when retained earnings are exhausted.
The weighted average cost of capital after all retained earnings are exhausted.
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Chapter 28 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 28 - Prob. 1PSCh. 28 - Performance measures Keller Cosmetics maintains an...Ch. 28 - Performance measures Table 28.8 gives abbreviated...Ch. 28 - Performance measures Describe some alternative...Ch. 28 - Financial ratios Look again at Table 28.8, which...Ch. 28 - Prob. 6PSCh. 28 - Financial ratios True or false? a. A companys...Ch. 28 - Financial ratios Sara Togas sells all its output...Ch. 28 - Financial ratios As you can see, someone has...Ch. 28 - Prob. 10PS
Ch. 28 - Prob. 11PSCh. 28 - Prob. 12PSCh. 28 - Prob. 13PSCh. 28 - Prob. 14PSCh. 28 - Prob. 15PSCh. 28 - Prob. 16PSCh. 28 - Prob. 17PSCh. 28 - Prob. 18PSCh. 28 - Prob. 19PSCh. 28 - Prob. 20PSCh. 28 - Prob. 21PSCh. 28 - Prob. 22PSCh. 28 - Prob. 23PSCh. 28 - Prob. 25PSCh. 28 - Prob. 26PSCh. 28 - Prob. 27PS
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- Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.arrow_forwardThe ratio that measures how much an investor is willing to pay for a dollar of earnings is known as a _____________ ratio. A. asset management B. market value C. profitabilityarrow_forwardc. Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.arrow_forward
- Which of the following statements are not true Select one: a. Profitability Index is a discounted technique b. Capitalisation are the total securities issued by a company c. Cash flows occurs over a series of years in capital budgeting decisions d. Some investment decisions are irreversible e. Borrowing is cheap compared to equityarrow_forwardYou wish to compute a firm's sustainable growth rate from its accounting statements. To do so, you could use the values of: Question 3 options: A) Total assets, net income, and the retention ratio. B) Net income, equity, and total assets. C) Net income, equity, and the dividend payout ratio. D) Interest paid, equity, and total assets. E) Total assets, interest paid, and equity.arrow_forwardWhich of the following is the correct statement about the inflation figure that is included in the money cost of capital? a. It is expected general inflation suffered by the investors b. It is historic general inflation suffered by the investors c. It is historic and specific to the business d. It is expected and specific to the businessarrow_forward
- A measure of profitability analysis is a. times interest earned. b. cash flow per share. c. quick ratio. d. dividend payout ratio. would d be the right answer for this question?arrow_forwardThe most important factor to consider when determining the dividends to be declared is a. the impact of inflation on replacement costs b. any future planned use of retained earnings d. the future planned use of cash available at the date of dividend distribution e. shareholders’ expectation about the firms’ profitabilityarrow_forwardComment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.arrow_forward
- Answer quickly please The _________ is the internal rate of return a firm must earn on its investment in order to maintain the market value of its stock. a. IRR b. net profit margin c. Cost of Capital d. gross profit marginarrow_forwardExplain why the required rate of return on a firm's assets must be equal to the weighted average cost of capital associated with its liabilities and equity. Explain using the concepts from the course.arrow_forwardWhich of the following is an appropriate computation for return on investment? a. Sales divided by total assets b. Net income divided by total assets c. Net income divided by sales d. Sales divided by stockholders' equity would b be the right answer?arrow_forward
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