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:

Operating Activities

The day-to-day actions that are involved in running a business, which are recorded in the cash flow from operating activities section of a company's cash flow statement.

Net Cash

The amount of cash available after accounting for all cash inflows and outflows.

Operating Activities

The day-to-day actions of a business that relate to its core operations, including production, sales, and other functions that generate revenue.

Net Cash

Cash balance post the deducting of cash disbursements from cash receipts.