Question 51 pts

Which of the following is NOT a capital component when calculating the weighted average cost of capital (WACC) for use in capital budgeting?

Group of answer choices

Retained earnings.

Long-term debt.

Common stock.

Preferred stock.

Accounts payable.

Flag question: Question 6

Question 61 pts

Which of the following statements is CORRECT?

Group of answer choices

Using accelerated depreciation rather than straight line normally has the effect of slowing down cash flows and thus reducing a projects forecasted NPV.

Using accelerated depreciation rather than straight line normally has the effect of speeding up cash flows and thus increasing a projects forecasted NPV.

Since depreciation is a cash expense, the faster an asset is depreciated, the lower the projected NPV from investing in the asset.

Corporations must use the same depreciation method for both stockholder reporting and tax purposes.

Under current laws and regulations, corporations must use straight-line depreciation for all assets whose lives are 5 years or longer.

Flag question: Question 7

Question 71 pts

Keys Printing plans to issue a $1,000 par value, 20-year noncallable bond with a 7.00% annual coupon, paid semiannually. The company's marginal tax rate is 40.00%, but Congress is considering a change in the corporate tax rate to 30.00%. By how much would the component cost of debt used to calculate the WACC change if the new tax rate was adopted? Do not round your intermediate calculations.

Group of answer choices

0.70%

0.60%

0.61%

0.69%

0.78%

Flag question: Question 8

Question 81 pts

The relative risk of a proposed project is best accounted for by which of the following procedures?

Group of answer choices

Adjusting the discount rate upward if the project is judged to have above-average risk.

Picking a risk factor equal to the average discount rate.

Ignoring risk because project risk cannot be measured accurately.

Reducing the NPV by 10% for risky projects.

Adjusting the discount rate upward if the project is judged to have below-average risk.