Question 15 2 pts Which of the following statements is CORRECT? (select all that apply) Sunk costs are the costs associated with "the road not taken". They represent the alternative cost of an asset if that asset were not already owned by the firm; therefore, these costs should be included in the capital budgeting analysis. Having the ability to abandon a project can increase a project's expected net present value. Having the ability to abandon a project can reduce a project's risk. Externalities can be either negative or positive, but they should be correctly accounted for in a project's cash flows when evaluating that project. A project's IRR is the discount rate that causes the project's NPV to equal zero. Suppose a project has a negative cash flow (a cost), then a series of positive cash inflows, and then another cost at the end of its life. In this situation it would be impossible for the project to have more than one IRR. A project's IRR is conceptually similar to a bond's YTM. One important difference between capital budgeting and security analysis is that in security analysis the analyst must generally take the projected cash flows as given rather than something the analyst can influence, whereas firms can often influence the cash flows from projects by making operating changes. The target capital structure is the mix of debt, preferred stock, and common equity the firm plans to raise to fund its future projects. The optimal capital structure is the one where the percentages of debt, preferred stock, and common equity minimize the firm's value. The cost of depreciation-generated funds is approximately equal to the WACC calculated from retained earnings, preferred stock, and debt. The investor-supplied items-debt, preferred stock, and common equity- are called capital components. Increases in assets must be financed by increases in these capital components