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Risky Projects and Discounting Cash Flows

A graph shows a company's common stock returns on the Y axis and the market returns on the X axis. The slope of the regression line represents
a. range of NPVs
b. standard deviation
c. diversifiable risk
d. Beta
e. diversifiable risk and beta

Risky projects can be evaluated by discounting certainty equivalent cash flows at the risk-free interest rate. True or False?

If the project's depreciation expense in year 4 is $36,000 and the firm's marginal tax rate is 30%, the cash flow consequence of depreciation in year 4 is
a. $10,800 tax expense
b. $25,200 tax expense
c. $10,800 tax savings
d. $25,200 tax savings
e. $36,000 tax savings
f. There is none.

Solution Preview

A graph shows a company's common stock returns on the Y axis and the market returns on the X axis. The slope of the regression line represents
d. Beta
http://www.investopedia.com/terms/b/beta.asp

Risky projects can be evaluated by discounting certainty equivalent cash flows at the risk-free interest rate. True or False

True
The certainty?equivalent approach ...

Solution Summary

232 words answer questions of cash flow consequence of depreciation and the evaluation of risky projects.

$2.19