Which of the Following Are Guidelines for the Three Methods

question 26

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 use APV if project's level of debt is known over the life of the project; and use FTE or WACC if the firm's target debt-to-value ratio applies to the project over its life.
• E) Both use APV if project's level of debt is unknown over the life of the project; and use FTE or WACC if the firm's target debt-to-value ratio applies to the project over its lifE.

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Definitions:

Excess Reserves

Bank reserves that exceed the required minimum amount that financial institutions must hold in reserve against deposit liabilities.

Required Reserves

The minimum amount of reserves that a bank must hold as dictated by central banking regulations, typically a percentage of deposits.

Interest

The cost of borrowing money, typically expressed as a percentage of the amount borrowed, that lenders charge borrowers for the use of their funds.

Federal Reserve

The central banking system of the United States, responsible for setting monetary policy, regulating banks, maintaining financial stability, and providing banking services.