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:

Adjusting Entry

An accounting record made to update the book balances to reflect the true financial status before preparing financial statements.

Biweekly Salaries

A payment schedule for employees where wages are paid every two weeks, resulting in 26 pay periods in a year.

Adjusting Entry

An update to the books of accounts to allocate incomes and expenses to the appropriate accounting period.

Fiscal Period

Refers to any period used for accounting purposes, typically a year, which can either align with the calendar year or be a different 12-month period.