Which of the Following Are Guidelines for the Three Methods

question 16

Multiple Choice

Which of the following are guidelines for the three methods of capital budgeting with leverage?

• A)Use APV if project's level of debt is known over the life of the project.
• B)Use APV if project's level of debt is unknown over the life of the project.
• C)Use FTE or WACC if the firm's target debt-to-value ratio applies to the project over its life.
• D)Both A and C.
• E)Both B and C.

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Definitions:

Contingent Liability

A potential obligation that may arise depending on the outcome of a future event or set of circumstances.

Deferred Tax Liability

This is a tax obligation due in the future for income already recorded in the financial statements, resulting from temporary differences between accounting and tax treatments.

Goodwill

The excess amount paid over the fair value of net assets acquired in a business combination, representing intangible assets such as brand reputation or customer relationships.

Future Costs

Expenses that are expected to be incurred in the future, which can include operational expenses, capital expenditure, or other financial liabilities.