Using a Company's Cost of Capital to Evaluate a Project

question 13

Multiple Choice

Using a company's cost of capital to evaluate a project is

• A)always correct.
• B)always incorrect.
• C)correct for projects that have average risk compared to the firm's other assets.
• D)always correct and correct for projects that have average risk compared to the firm's other assets.

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Definitions:

Indirect Method

A method for preparing the cash flow statement where net income is adjusted for changes in balance sheet items to calculate cash flow from operating activities.

Depreciation Expense

This is the systematic allocation of the cost of a tangible asset over its useful life.

Investing Activities

Financial transactions and decisions related to acquiring or disposing of long-term assets and investments that can affect a company's capital structure.

Cash Inflow

Refers to the money received by a business from its various activities, including sales, investments, and financing.