A Firm Is Considering an Average-Risk Project with an IRR

question 32

Multiple Choice

A firm is considering an average-risk project with an IRR of 6%.The firm's cost of debt (K_D) is 5%,its cost of equity (K_E) is 12%,and its tax rate (t) is 20%.The target debt ratio (D/(D+E) ) for the project,in market values,is 0.5.The firm should:

• A) accept the project only if it can be completely financed with equity
• B) accept the project only if it can be completely financed with debt
• C) accept the project regardless of the financing method
• D) reject the project regardless of the financing method

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Definitions:

Reflected Self

The perception of how others see and evaluate us, influencing our self-concept and social behavior.

Impression Management

The process by which individuals attempt to control the impressions others form of them, especially in social or professional contexts.

Ideal Self

An individual’s conception of how they would like to be, often serving as a motivational driver in behavior and personal goals.

Real Self

An individual's authentic self-concept, free from societal expectations and pressures, representing true personal identity and beliefs.