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Finance: Cost of Capital, Zoldt

As the cost of capital is increased, the:
a. IRR remains constant.
b. Payback period remains the same.
c. Discounted payback period increases.
d. Both "b" and c.
e. All of the above

In the event that Zoldt Corporation, which has a low P/E ratio, were to
acquire Sky Corporation, which has a higher P/E ratio, an analyst can be
certain that one of the following will occur.
a. Zoldt Corp. will see an immediate decrease in P/E.
b. Zoldt Corp. will see an immediate decrease in EPS.
c. Zoldt Corp. will see an immediate increase in the growth rate
of EPS.
d. Zoldt Corp. will see an immediate increase in EPS.

If a company's average collection period is higher than the industry average,
then the company might be:
a. Enforcing credit conditions upon its customers which are too
stringent.
b. Allowing its customers too much time to pay their bills.
c. Too tough in collecting its accounts.
d. Too liquid.

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As the cost of capital is increased, the:
a. IRR remains constant.
b. Payback period remains the same.
c. Discounted payback period increases.
d. Both "b" and c.
e. All of the above

Answer: E
In the event that Zoldt Corporation, which has a low P/E ratio, were to
acquire Sky Corporation, which has a higher P/E ratio, an ...

Solution Summary

This solution is comprised of a detailed explanation to answer what will happen when the cost of capital is increased, when Zoldt Corporation, which has a low P/E ratio, were to acquire Sky Corporation, and if a company's average collection period is higher than the industry average.

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