For a Firm Confronted with a Fixed Schedule of Possible

question 16

Multiple Choice

For a firm confronted with a fixed schedule of possible new investments, any policy that lowers the firm's cost of capital will increase the profitable capital expenditures the firm takes on and increase the wealth of the firm's shareholders. One such policy is

• A)internationalizing the firm's capital budgeting opportunities.
• B)internationalizing the firm's cost of capital.
• C)investing in riskier projects financed with debt.
• D)none of the above

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Definitions:

Effective Rate of Interest

The actual cost of borrowing or the actual return on savings, taking into account the effect of compounding interest.

Straight-Line Amortization

A method of allocating the cost of an intangible asset over its useful life in equal installments.

Cash Paid Out

Money that is spent or disbursed by a business, often related to operating expenses, purchasing assets, or repaying liabilities.

Current Calendar Year

The period from January 1 to December 31 of the present year, used for financial and administrative purposes.