Jo Ann Cox's boss has pointed out that Geothermal proposes to finance its expansion entirely by borrowing at an interest rate of 8 percent. He argues that this is therefore the appropriate discount rate for the project's cash flows. Is he right?

2. How will the following affect cash and net working capital?

a. The firm takes out a short-term bank loan and uses the funds to pay off some of its accounts payable.

b. The firm uses cash on hand to buy raw materials.

c. The firm repurchases outstanding shares of stock.

d. The firm sells long-term bonds and puts the proceeds in its bank account.

3. Some projects that a firm accepts will undoubtedly result in zero or negative returns. Therefore, shouldn't the firm adjust its hurdle rate upward to ensure that the weighted average return on its total new investments meets or exceeds the firm's cost of capital?

4. What does a low capital intensity ratio mean? The capital intensity ratios for two detergent manufacturing firms are 1.1 and 1.6. Manufacturer with a greater ratio has $2 million in sales, whereas the other firm has $2.1 million in sales. Analyze the efficiency of both firms.