34 . A firm ’ s WACC can be correctly used to discount the expected cash flows of a new project when that project : will be financed with the same proportions of debt and equity as those currently used by the overall firm . will be financed solely with internal equity .
35 . The cost of preferred stock : 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