Assume the Following: (1)A Firm Is Considering Two Projects,one with a 5-Year

question 53

True/False

Assume the following: (1)A firm is considering two projects,one with a 5-year life and the other with a 10-year life;(2)the cash flows of the two projects are equally risky by all definitions of the word "risky";(3)the company uses 40 percent debt and 60 percent equity to finance the projects;(4)the debt used to finance any given project has a maturity equal to the life of the project;and (5)the term structure of interest rates has a sharp upward slope.This would suggest,other things held constant,that a lower discount rate should be used to find the NPV for the 5-year project than for the 10-year project.

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Definitions:

Palazzo Barberini

A 17th-century palace in Rome, Italy, that showcases Baroque architecture. It now houses the Galleria Nazionale d'Arte Antica.

Nominal GDP

The market value of all final goods and services produced within a country in a given period without adjusting for inflation.

Real GDP

Real Gross Domestic Product is a comprehensive measure of a nation's overall economic activity, adjusted for inflation, indicating the value of its goods and services at constant prices.

GDP Deflator

An economic metric that converts output measured at current prices into constant-dollar terms to assess real growth.