A Firm Is Considering a Project That Will Generate Perpetual

question 89

Multiple Choice

A firm is considering a project that will generate perpetual cash flows of $50,000 per year beginning next year.The project has the same risk as the firm's overall operations.If the firm's WACC is 12%,and its debt-to-equity ratio is 1.33,what is the most it could pay for the project and still earn its required rate of return?

• A) $313,283
• B) $375,094
• C) $416,667
• D) $554,167

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Definitions:

Controlled Conditions

Specific parameters maintained during scientific research or experiments to ensure the validity and reliability of the results.

Independent Variable

In research and experimentation, the variable that is manipulated or changed to assess its effect on a dependent variable.

Extraneous Variable

Any variable that you are not intentionally studying in your experiment or test that could affect the outcome of your research.

Independent Variable

The variable in an experimental setup that is manipulated or changed to observe its effect on the dependent variable.