question archive Assume you are considering two mutually exclusive projects
Assume you are considering two mutually exclusive projects
Subject:FinancePrice:2.86 Bought3
Assume you are considering two mutually exclusive projects. Project A has a 5 year life and Project B has a 7-year life. The projects are not renewable. The best project is the one with the highest annual equivalent cash flow. True or False
The optimal financing decision is one that minimizes the ATWACOC True or False
As leverage increases, stockholder will prefer less risky projects True or False The optimal financing decision is one that minimizes the ATWACOC True or False
Purchase A New Answer
Custom new solution created by our subject matter experts
GET A QUOTE
Answer Preview
1) True
Here both projects have different life and hence simply comparing NPV won't do. Here one need to compare Equivalent annual annuity to determine which project is better
EAA = NPV/PVIFA(r%,n)
2) True
Optimal capital structure is that capital structure where ATWACOC is minimum
3) True
As financial leverage increases, risk of degault increases and hdnce ddbt holder will prefer less risky projects
