Which of the Following Statements Is CORRECT? Assume That All

question 16

Multiple Choice

Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.

• A) If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative.
• B) If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero.
• C) There is no necessary relationship between a project's IRR, its WACC, and its NPV.
• D) When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high.
• E) If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.

Understand the concept of financial leverage and how it impacts stock price and firm value.

Analyze the conditions under which financial leverage benefits shareholders.

Distinguish between the effects of financial leverage on various performance metrics such as ROE, EPS, and EBIT.

Grasp the implications of fixed-cost financing and the meaning of financial leverage.

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Definitions:

Trusting Subordinates

The act of believing in the reliability, truth, ability, or strength of one's lower-ranking employees.

Work Standards

The expected levels of performance and quality that employees are required to meet in their job roles.

Leadership Style

Leadership style is the recurring pattern of behaviours exhibited by a leader.

Recurring Pattern

A sequence or a cycle of events or behaviors that repeat at regular intervals.