Question
We are asked that: (a) What is the distinction between evaluating the expected value of net present value and standard deviation for an individual investment
- We are asked that:
(a) What is the distinction between evaluating the expected value of net present value and standard deviation for an individual investment project and those for a group or combination of projects?
(b)Should companies in the same industry have approximately the same required rates of return on investment projects? Why or why not?
(c) If you use debt funds to finance a project, is the after-tax cost of debt the required return for the project? As long as the project earns more than enough to pay interest and service the principal, does it not benefit the firm?
(d) If the cost of bankruptcy proceedings (attorney fees, trustee fees, delays, inefficiencies, and so on) were to rise substantially, would this occurrence have an effect on a company's required rate of return and on the way the firm looks at investment opportunities?
(e) Should a company with multiple divisions establish separate required rates of return, or costs of capital, for each division as opposed to using the company's overall cost of capital? Explain.
(f) For a corporation investing in capital projects, how is value created by using required return calculations?
(g) What are the sources of value creation through capital investment decisions?
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