A Firm Is Considering Expanding Its Current Operations and Has

question 6

Multiple Choice

A firm is considering expanding its current operations and has estimated the internal rate of return on that expansion to be 12.2%.The firm's WACC is 11.8%.Given this,you know that the:

• A) project will have a lower debt-equity ratio than the firm's current operations.
• B) appropriate discount rate for the project is between 11.8% and 12.2%.
• C) project has slightly more risk than the firm's current operations.
• D) expansion should be undertaken as it has a positive net present value.

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Definitions:

Inflationary Pressure

Situations where upward trends in prices are predicted due to factors such as increased production costs or rising demand.

Classical Economists

Refers to economists from the 18th and early 19th centuries who focused on economic growth, free markets, and the importance of limited government intervention.

Laissez-faire Policies

An economic policy of non-intervention where private parties are free from government restrictions, tariffs, and subsidies.

Classical Economists

Economists from the late 18th and early 19th centuries who believed in free markets, competition, and the self-regulating nature of economies.