The Volatility of Interest Rates Can Affect the Value of the Project

question 28

Multiple Choice

The volatility of interest rates can affect the value of the project by:

• A)increasing the value as volatility increases.
• B)increasing the value as volatility decreases.
• C)decreasing the value as volatility increases.
• D)interest rate volatility does not affect value.
• E)None of the above.

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Definitions:

External Financing

Funds raised from sources outside the company, such as investors or lenders.

Sustainable Rate

The sustainable rate often refers to the growth rate a company can maintain without needing to increase financial leverage or equity financing.

Internal Rate

The interest rate at which the net present value of all the cash flows from an investment or project is zero.