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Which of the following is NOT a shortcoming of the payback rule of capital budgeting? Simplicity of calculation Ignoring the time value of money lgnoring
Which of the following is NOT a shortcoming of the payback rule of capital budgeting? Simplicity of calculation Ignoring the time value of money lgnoring all cash flows beyond the payback period The lack of a definitive decision rule Does not measure changes in wealth QUESTION 13 RCT is a firm in financial distress. They have extremely high financial leverage, pay high property taxes, pay high wages, and find themselves the defendant in a lawsuit that could potentially result in a large settlement against the firm. In addition, the firm is considering raising a significant amount of funds to fund drilling for oil on land that they own, a project considered to have a negative NPV and be very risky, but if everything goes perfectly it could result in a massive windfall for the firm. Which of the following actions is best from the standpoint of RCT's shareholders at this time? Reject the oil drilling project because it's too risky. Reject the oil drilling project because it has a negative NPV. The firm would be indifferent between any of the above choices. Reject the oil drilling project as a bad use of creditors' funds. Accept the oil drilling project and try to raise the needed funds through new debt or equity. QUESTION 14 Which bests defines the term "sunk costs"? Non-cash costs that are important only because they serve as a tax shield Costs that have already been incurred and should not change behavior Costs that are so large that they tend to overwhelm the project Benefits that would not have been received or costs that would not have incurred if a project had not been undertaken Hidden but relevant costs or benefits that should be factored into cash flows
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