Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
9th Edition
ISBN: 9781259277214
Author: Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Bradford D Jordan Professor
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 9, Problem 9.7C
Section 9.7 Capital rationing exists when a company has identified positive
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7.For a lending investment project, which of the following is a bad decision rule?
If IRR is less than cost of capital: reject
If IRR is greater than cost of capital: accept
If profitability index is less than O: accept
If profitability index is greater than O:accept
3. I need help with multiple choice finance home work question
Which of the following statements is incorrect?
If a firm's target average accounting return is less than that calculated for a given project then the project should be accepted.
If the NPV of a project is positive, it should be accepted.
If a project has a payback which is faster than the company requires the project should be accepted.
If the cost of capital is greater than the IRR, the project should be accepted.
If a project has a profitability index greater than one the project should be accepted.
12
inance
Which of the following is correct as it relates to using Excel Solver in case of capital rationing?
Group of answer choices
One creates binary variables that have the value of either 1 (chosen) or 0 (not chosen).
One sets the objective such as to maximize the net present value of chosen investments.
One sets the constraint such as the total investments being greater than the amount of capital available.
Chapter 9 Solutions
Essentials of Corporate Finance (Mcgraw-hill/Irwin Series in Finance, Insurance, and Real Estate)
Ch. 9.1 - Prob. 9.1ACQCh. 9.1 - What is the stand-alone principle?Ch. 9.2 - Prob. 9.2ACQCh. 9.2 - Prob. 9.2BCQCh. 9.2 - Explain why interest paid is not a relevant cash...Ch. 9.3 - What is the definition of project operating cash...Ch. 9.3 - In the shark attractant project, why did we add...Ch. 9.3 - Prob. 9.3CCQCh. 9.4 - Prob. 9.4ACQCh. 9.4 - How is depreciation calculated for fixed assets...
Ch. 9.5 - Prob. 9.5ACQCh. 9.5 - What are some potential sources of value in a new...Ch. 9.6 - What are scenario and sensitivity analyses?Ch. 9.6 - Prob. 9.6BCQCh. 9.7 - Why do we say that our standard discounted cash...Ch. 9.7 - What are managerial options in capital budgeting?...Ch. 9.7 - Prob. 9.7CCQCh. 9 - Prob. 9.1CCh. 9 - Section 9.2What are sunk costs?Ch. 9 - Prob. 9.3CCh. 9 - Section 9.4If a firms current assets are 150,000,...Ch. 9 - A project has a positive NPV. What could drive...Ch. 9 - If a firms variable cost per unit estimate used in...Ch. 9 - Section 9.7Capital rationing exists when a company...Ch. 9 - Opportunity Cost. In the context of capital...Ch. 9 - Depreciation. Given the choice, would a firm...Ch. 9 - Prob. 3CTCRCh. 9 - Stand-Alone Principle. Suppose a financial manager...Ch. 9 - Prob. 5CTCRCh. 9 - Capital Budgeting Considerations. A major college...Ch. 9 - Prob. 7CTCRCh. 9 - Prob. 8CTCRCh. 9 - Prob. 9CTCRCh. 9 - Sensitivity Analysis and Scenario Analysis. What...Ch. 9 - LO19.11Marginal Cash Flows. A co-worker claims...Ch. 9 - Prob. 12CTCRCh. 9 - Forecasting Risk. What is forecasting risk? In...Ch. 9 - Options and NPV. What is the option to abandon?...Ch. 9 - Prob. 1QPCh. 9 - Relevant Cash Flows. Winnebagel Corp. currently...Ch. 9 - Prob. 3QPCh. 9 - Calculating OCF. Consider the following income...Ch. 9 - Calculating Depreciation. A piece of newly...Ch. 9 - Prob. 6QPCh. 9 - Prob. 7QPCh. 9 - Calculating Project OCF. Rolston Music Company is...Ch. 9 - Calculating Project OCF. H. Cochran, Inc., is...Ch. 9 - Calculating Project NPV. In the previous problem,...Ch. 9 - Calculating Project Cash Flow from Assets. In the...Ch. 9 - NPV and Modified ACRS. In the previous problem,...Ch. 9 - Project Evaluation. Kolbys Korndogs is looking at...Ch. 9 - Project Evaluation. Your firm is contemplating the...Ch. 9 - Project Evaluation. In the previous problem,...Ch. 9 - Prob. 16QPCh. 9 - Prob. 17QPCh. 9 - Sensitivity Analysis. We are evaluating a project...Ch. 9 - Prob. 19QPCh. 9 - Prob. 20QPCh. 9 - Cost-Cutting Proposals. CSM Machine Shop is...Ch. 9 - Sensitivity Analysis. Consider a three-year...Ch. 9 - Project Analysis. You are considering a new...Ch. 9 - Project Analysis. McGilla Golf has decided to sell...Ch. 9 - Project Evaluation. Aria Acoustics, Inc. (AAI),...Ch. 9 - Prob. 26QPCh. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...Ch. 9 - Conch Republic Electronics Conch Republic...
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- 4. What does hard capital rationing mean? A Capital is limited at more than one point in time B Divisions have been limited in their investments by head office C Capital rationing is a complex and difficult calculation D Limited external funds are available for investmentarrow_forward[S1] Operating leverage will decrease as the company's margin of safety increases. [S2]The break-even point for a capital intensive, automated company will tend to be higher than for a less capital intensive company while the margin of safety will tend to be lower. Only S1 is true. Only S2 is true. Both statements are true. Both statements are false.arrow_forwardWhich of the following is true regarding capital rationing decisions? a. Companies should always choose the investment with the highest NPV. b. Companies should always choose the investment with the highest ARR. c. Companies should always choose the investment with the shortest payback. d. None of the abovearrow_forward
- What is capital rationing? What types of firms might encounter capital rationing?arrow_forwardParticipation #6: Why is it desirable to construct capital budgeting rules so that higher-risk projects become less acceptable than lower-risk projects?arrow_forward10 1. About the capital structure theory 1) Why is the perfect capital market important to the capital structure theory? 2) Under what kind of the perfect capital market, is the optimal capital structure 100% debt? Why? 2. There are some M&As, which are driven by cognitive errors such as managers’ hubris. Explain how these kinds of M&As are motivated and their plausible outcomesarrow_forward
- QUESTION 5 The net present value of a project tells management what decision to make on that investment. If the net present value is negative, management should: O accept the project because the cost is less than the revenue, thereby adding value to the firm. O reject the project because the present value of future cash-flows is greater than the cost of the project. O reject the project because accepting would reduce the value of the firm. accept or reject depending on the project's payback period. 3 QUESTIONE Click Save and Submit to save and submit. Click Save All Answers to save all answers. E $ 4 Q Search or enter website name R % 5 MacBook Pro T 6 Y & 7 с * 00 8 Save. Oarrow_forwardQuestion 6 Which one of the following methods predicts the amount by which the value of a firm will change if a project is accepted? O Payback O Profitability index O Net present value O Internal rate of return O Discounted paybackarrow_forwardp19 Financial flexibility is an important consideration when managers are choosing the firm’s capital structure since despite what the theory says sometimes it may not be possible to find financing at a reasonable price if a positive NPV investment becomes available. True Falsearrow_forward
- 8. Which of the following statements is FALSE? When a firm faces financial distress, it may choose not to finance new, positive-NPV projects. An under-investment problem occurs when shareholders choose to not invest in a positive-NPV project. Agency costs represent another cost of increasing the firm's leverage that will affect the firm's optimal capital structure choice. The agency costs of debt can arise only if there is no chance the firm will default and impose losses on its debt holders.arrow_forwardMany companies still go ahead to undertake capital projects even when these projects have a negative NPV. Why do you think this is so?arrow_forwardQ14 Which of the following assumption of cost of capital is wrongly stated? a. It is not a cost as such b. It is the minimum rate of return on finance c. It is the minimum rate of return on investment d. It consists of riskless cost, business risk and financial riskarrow_forward
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Capital Budgeting Introduction & Calculations Step-by-Step -PV, FV, NPV, IRR, Payback, Simple R of R; Author: Accounting Step by Step;https://www.youtube.com/watch?v=hyBw-NnAkHY;License: Standard Youtube License