Which of the following statements is (are) FALSE? Select one or more alternatives: When sales of a new product displace sales of an existing product, the situation is often referred to as cannibalisation. If the IRR of a project is equal to the cost of capital, the NPV will be zero. It is reasonable to assume that a business has a terminal growth rate higher than the long-term growth rate of the economy. The terminal growth rate is the growth rate used to estimate the terminal value of a business. Interest expenses from borrowing should be subtracted from EBIT to estimate free cash flow to firm.

Which of the following statements is (are) FALSE? Select one or more alternatives: When sales of a new product displace sales of an existing product, the situation is often referred to as cannibalisation. If the IRR of a project is equal to the cost of capital, the NPV will be zero. It is reasonable to assume that a business has a terminal growth rate higher than the long-term growth rate of the economy. The terminal growth rate is the growth rate used to estimate the terminal value of a business. Interest expenses from borrowing should be subtracted from EBIT to estimate free cash flow to firm.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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If an investment project has a negative net present value (NPV), which one of the following statements about the internal rate of return (IRRT) of this project must be true? Select the correct response: The IRR is negative. The IRR is less than the company's weighted average cost of capital. The IRR is equal to zero. The IRR is greater than the company's weighted average cost of capital.
For most firms, there is some sales growth rate atwhich they could grow without needing any external financing, that is, where AFN = $0. How couldyou determine that growth rate? What variablesunder management’s control would affect thissustainable growth rate?
Which of the following statements is false? (You may select more than one answer.)a. The payback period increases as the cost of capital decreases.b. The simple rate of return will be the same for two alternatives that have identicalcash flow patterns even if the pattern of accounting net operating income differsbetween the alternatives.c. The internal rate of return will be higher than the cost of capital for projects thathave positive net present values.d. If two alternatives have the same present value of cash inflows, the alternative thatrequires the higher investment will have the higher project profitability index.
Which of the following statements is not correct? The higher the sales growth rate g is, the larger AFN will be—other things held constant. The higher the capital intensity ratio, the larger AFN will be—other things held constant. The higher the firm’s spontaneous liabilities, the smaller AFN will be—other things held constant. The higher the payout ratio, the smaller AFN will be if other things held constant.
NEED ASAP. THANK YOU!! 1. Which of the following statements is correct? Group of answer choices - Higher sales usually require higher asset levels, and this leads to what we call AFN. However, the AFN will be zero if the firm chooses to retain all of its profits, i.e., to have a zero dividend payout ratio. - If a firm’s assets are growing at a positive rate, but its retained earnings are not increasing, then it would be impossible for the firm’s AFN to be negative. - Dividend policy does not affect the requirement for external funds based on the AFN equation. - AFN is not always positive. - If a firm increases its dividend payout ratio in anticipation of higher earnings, but sales and earnings actually decrease, then the firm’s actual AFN must, mathematically, exceed the previously calculated AFN.2. When we use the AFN equation to forecast the additional funds needed (AFN), we are implicitly assuming that all financial ratios are constant. Group of answer choices - True…
suppose a company's return on invested capital is less than its wacc. what happens to the value of operations if the sales growth increases? Explain your answer
Suppose a company’s return on invested capital is less than itsWACC. What happens to the value of operations if the salesgrowth rate increases?
Which of the following does NOT always increase a company’s MVA? Group of answer choices: Increasing the expected growth rate of sales Decreasing the capital requirements (Capital/Sales) Decreasing the weighted average cost of capital Increasing the expected operating profitability (NOPAT/Sales) Increasing the expected rate of return on invested capital
Define the term self-supporting growth rate. What is Hatfield’s self-supporting growth rate? Would the self-supporting growth rate be affected by a change in the capital intensity ratio or the other factors mentioned in the previous question? Other things held constant, would the calculated capital intensity ratio change over time if the company were growing and were also subject to economies of scale and/or lumpy assets?
Which of the following statements is true? I. In the payback method, depreciation is added back to net operating income when computing the annual net cash flow. II. When a company is cash poor, a project with a short payback period but a low rate of return may be preferred to a project with a long payback period and a high rate of return. III. A shorter payback period does not necessarily mean that one investment is more desirable than another. Only statement III is true. O All of the statements are true. None of the statements are true. Only statement I is true.
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c. Define the term capital intensity. Explain how a decline in capital intensity would affect the AFN, other things held constant. Would economies of scale combined with rapid growth affect capital intensity, other things held constant? Also, explain how changes in each of the following would affect AFN, holding other things constant: the growth rate, the amount of accounts payable, the profit margin, and the payout ratio.