is set equal to the pretax cost of debt since it is a fixed income security . is ignored by all firms when computing WACC . is generally calculated using the overall firm ’ s beta . is equal to the stock ’ s dividend yield . should be adjusted for taxes when computing WACC . 36 . When computing WACC , you should use the : pretax cost of debt because most corporations pay taxes at the same tax rate . aftertax cost of debt because interest is tax deductible . pretax cost of debt because it is the actual rate the firm is paying bondholders . current yield because it is based on the current market price of debt . pretax yield to maturity because it considers the current market price of debt . 37 All else constant , the net present value of a typical investment project increases when : all cash inflows occur during the last year instead of periodically throughout a project ’ s life . each cash inflow is delayed by one year . the initial cost of a project increases . the discount rate increases . the rate of return decreases .
38 . Graham and Harvey ( 2001 ) found that _____ were the two most popular capital budgeting methods . IRR and payback IRR and NPV discounted payback and NPV IRR and modified IRR NPV and PI 39 . The primary reason that company projects with positive net present values are considered acceptable is that : they return the initial cash outlay within three years or less . the investment ' s cost exceeds the present value of the cash inflows . they create value for the owners of the firm . the project ' s rate of return exceeds the rate of inflation . the required cash inflows exceed the actual cash inflows . 40 . fitability index of an investment project is the ratio of the : net present value of the project ’ s cash outflows divided by the net present value of its inflows . net present value of every project cash flow to the initial cost .