Question

2.

An increase in interest rates would also increase the firm's WACC, decreasing projects' NPVs, thus changing the accept/reject decision for any potential project. The IRR's accept/reject decision would be affected in the same way due to the increased hurdle rate caused by the increase in the WACC.

True

False

If interest rates decrease, you would accept fewer projects regardless of evaluating them using NPV versus IRR.

True

False

Despite having fixed coupon payments and a fixed face value, non-callable bonds are risky investments.

True

False

Other things held constant, the more debt a firm uses, the higher its EBIT will be.

True

False

Although the next-to-last line on the income statement shows the firm's earnings and the last line shows the dividends the company paid, after-tax earnings are frequently called "the bottom line."

True

False

Answer 1

1st question - The answer is true. As the discount rate increases both the NPV and IRR decision changes. It lowers NPV and increase hurdle rate for IRR

2nd Question - "False" - Interest rate if decreased then cost of borrowing will decrease, so more projects will be accepted. we always have to evaluate by IRR and NPV

3rd Question - "False", callable bonds are risky investments as they can be called when bond price rises. Non callable bond risk lies on the issuer like any other bond..

4th Question - "False" - Interest is deducted after EBIT, so debt has no effect on EBIT

We can only answer 4 questions. As per the guideline