Question
A capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decisions. In reality,
A capital budgeting project is usually evaluated on its own merits. That is, capital budgeting decisions are treated separately from capital structure decisions. In reality, these decisions may be highly interwoven. This interweaving is most apt to result in:
Multiple Choice
firms rejecting positive NPV, all-equity projects because changing to a capital structure with debt will always create negative net present values.
firms foregoing project analysis and just making decisions at random.
corporate financial managers first checking with their investment bankers to determine the best type of capital to raise before valuing a project.
firms accepting some negative NPV all-equity projects because changing the capital structure adds enough positive leverage tax shield value to create a positive NPV.
firms never changing their capital structure because all capital budgeting decisions will be overridden by capital structure decisions.
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