In Order to Value a Project Which Is Not Scale

question 7

Multiple Choice

In order to value a project which is not scale enhancing you need to:

• A) typically calculate the equity cost of capital using the risk adjusted beta of another firm before calculating the WACC.
• B) typically increase the beta of another firm in the same line of business and then calculate the discount rate using the SML.
• C) typically you can simply apply your current cost of capital.
• D) discount at the market rate of return since the project will diversify the firm to the market.

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Definitions:

Interest Expense

The financial charge an organization incurs from taking out loans.

Tax Rate

The percentage of an individual's or corporation's income or profits that is paid to the government as tax.

Cash Flow

The net amount of cash and cash equivalents being transferred into and out of a business.

Creditors

Individuals or entities to whom money is owed by a debtor, usually in the form of loans or credit extended for business operations.