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:

Foreign Country

A nation distinct from one's own country, typically referred to in the context of international trade, travel, or relations.

Political Actions

Activities undertaken by individuals, groups, or governments to influence political decisions, policies, or public opinion.

Foreign Bonds

Bonds issued in a domestic market by a foreign entity, denominated in the domestic market's currency as a form of investment.

United States

A country in North America, consisting of 50 states, known for its significant economic and political influence globally.