Question
Which of the following statements is incorrect: Multiple Choice If a firm uses its WACC to evaluate projects that have higher risk than the overall
Which of the following statements is incorrect:
Multiple Choice
If a firm uses its WACC to evaluate projects that have higher risk than the overall firm, then over time the firm will both accept unprofitable investments and become increasingly risky.
There are multiple growth rates for a firm that does not issue new equity and its dividend policy, profit margin and fixed asset turnover ratios are all fixed.
Cost of debt is the return the firms creditors demand on new borrowing.
Sales minus variable costs equals fixed costs plus depreciation can be rearranged to solve for the accounting breakeven level.
The basic idea behind sensitivity analysis is to freeze all the variables except one and then see how sensitive the NPV is to changes in that variable.
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