When a Firm Has Flotation Costs Equal to 7 Percent

question 84

Multiple Choice

When a firm has flotation costs equal to 7 percent of the funding need,project analysts should:

• A)increase the project's discount rate to offset these expenses by multiplying the firm's WACC by 1.07.
• B)increase the project's discount rate to offset these expenses by dividing the firm's WACC by (1 - 0.07).
• C)add 7 percent to the firm's WACC to get the discount rate for the project.
• D)increase the initial project cost by multiplying that cost by 1.07.
• E)increase the initial project cost by dividing that cost by (1 - 0.07).

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Definitions:

Constriction

The act or process of making something narrower, tighter, or more enclosed.

Dilation

The process of expanding or widening in size; in physiology, it often refers to the widening of blood vessels or pupils in response to specific stimuli.

Dark Adaptation

The process by which the eyes become more sensitive to low levels of light after being in brighter light, allowing for better vision in darkness or dimness.

Absolute Thresholds

The minimum intensity of stimulation required to detect a particular sensory input 50% of the time.