Student Answer:
Requires an estimate of the yield-to-maturity for long-term
bonds.
Is equal to the pretax cost of debt times t, where t = income
tax rate.
Is equal to the pretax cost of debt รท (1 - t), where t = income
tax rate.
Is approximated by the firm's short-term borrowing rate.
Is estimated using the Capital Asset Pricing Model (CAPM).
Question 10. Question : Which one of the following is an
advantage of the payback
method?
Student Answer:
It provides a (rough) measure of risk.
It is linearly related to the net present value (NPV) of a
proposed project.
It considers all possible future cash flows.
It applies conventional discounting procedures to anticipated
future cash flows.
It allows managers to choose between competing projects
with