1. The cost of capital used in capital budgeting should reflect the average cost of the various sources of long-term funds a firm uses to acquire assets *

True

False

2. Funds acquired by the firm through retaining earnings have no cost because there are no dividend or interest payments associated with them, and no flotation costs are required to raise them, but capital raised by selling new stock or bonds does have a cost. *

True

False

3. The component costs of capital are market-determined variables in the sense that they are based on investors' required returns. *

True

False

4. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV *

True

False

5. The NPV method's assumption that cash inflows are reinvested at the cost of capital is generally more reasonable than the IRR's assumption that cash flows are reinvested at the IRR. This is an important reason why the NPV method is generally preferred over the IRR method. *

True

False