ADMS 3530 Lecture Notes - Tax Shield, Weighted Arithmetic Mean, Capital Structure

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True / false questionsnew projects can be evaluated using the company cost of capital providing that the: capital structure in essence is a firm"s mix of long-term financing. True: the company cost of capital is the expected rate of return that investors demand from the company"s assets and operations. True: amazon. com exhibits lower weighted-average cost of capital than intel. Weighted-average cost of capital is the expected rate of return on a portfolio of all the firm"s securities, adjusted for tax savings due to interest payments. If a project has zero npv when the expected cash flows are discounted at the weighted- average cost of capital, then the project"s cash flows are just sufficient to give debtholders and shareholders the return they require. Mcdonalds" weighted-average cost of capital is lower than that of wal-mart. The explicit cost of debt is the rate of interest that bondholders demand.

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