Which of the Following Should Be Considered When a Company

question 29

Multiple Choice

Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project?

• A) The new project is expected to reduce sales of one of the company's existing products by 5%.
• B) Since the firm's director of capital budgeting spent some of her time last year to evaluate the new project,a portion of her salary for that year should be charged to the project's initial cost.
• C) The company has spent and expensed $1 million on research and development costs associated with the new project.
• D) The company spent and expensed $10 million on a marketing study before its current analysis regarding whether to accept or reject the project.
• E) The firm would borrow all the money used to finance the new project,and the interest on this debt would be $1.5 million per year.

Understand the concepts of coupon rate, duration, and their impact on bond investment decisions.

Determine the inflation rate given nominal and real rates of return.

Calculate the duration of bonds and understand its implication on interest rate risk.

Understand the concept of interest rate risk and identify which bonds are more susceptible to it.

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Definitions:

Conformers

Different spatial arrangements of a molecule that result from the rotation around single bonds.

Energy

The capacity to do work, manifesting in forms like heat, light, motion, electrical, chemical energy, and more, fundamentally conserved in nature.

Butane

A gaseous hydrocarbon with the formula \(C_4H_{10}\), used as fuel and a precursor in organic chemistry.

Newman Structure

A way to represent the spatial arrangement of atoms around a carbon-carbon single bond, illustrating staggered or eclipsed conformations.