Question

Firm A and Firm B (not their real names) are competitors in the manufactured housing industry,...

Firm A and Firm B (not their real names) are competitors in the manufactured housing industry, so they often face the same investment opportunities. However, because Firm A is in better financial shape (and therefore less risky) than Firm B, its cost of financing is lower. Specifically, Firm A’s WACC is 11% while Firm B’s WACC is 15% Which of the following is/are true as a result of this?

Group of answer choices

You know, this is all very confusing. May I be excused?

Because Firm B is riskier, any project it undertakes will earn higher returns than if that same project were undertaken by Firm A.

If Firm A and Firm B are evaluating the same project, that project will be more valuable to Firm A than to Firm B due to Firm A’s lower required rate of return.

Firm A and Firm B have an equal opportunity of creating value since the value of a project is not dependent on the cost of funds used to finance it.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The stocks of Firm A and Firm B each have the same beta, but the standard...
The stocks of Firm A and Firm B each have the same beta, but the standard deviation of Firm A’s investment projects is higher than Firm B’s. Which firm has the lower firm-specific risk? Which firm has the lower systematic risk?
Yatta Net International has manufacturing, distribution, retail, and consulting divisions. Projects undertaken by the manufacturing and...
Yatta Net International has manufacturing, distribution, retail, and consulting divisions. Projects undertaken by the manufacturing and distribution divisions tend to be low-risk projects, because these divisions are well established and have predictable demand. The company started its retail and consulting divisions within the last year, and it is unknown if these divisions will be profitable. The company knew that opening these new divisions would be risky, but its management believes the divisions have the potential to be extremely profitable under...
Understanding risks that affect projects and the impact of risk consideration Yatta Net International has manufacturing,...
Understanding risks that affect projects and the impact of risk consideration Yatta Net International has manufacturing, distribution, retail, and consulting divisions. Projects undertaken by the manufacturing and distribution divisions tend to be low-risk projects, because these divisions are well established and have predictable demand. The company started its retail and consulting divisions within the last year, and it is unknown if these divisions will be profitable. The company knew that opening these new divisions would be risky, but its management...
1. Llehs is an oil & gas company that has been operating for several decades in...
1. Llehs is an oil & gas company that has been operating for several decades in Australia. It also operates in Latin America and the US. There has been increasing pressure on the company to decarbonise their portfolio and thus the company is looking into investing in renewable energy. It is considering a wind-energy project on the Australia West Coast. If the WACC for the Llehs is currently 18%, what discount rate should Llehs use when evaluating the wind-energy project?...
show your detailed work and how you arrived to the solution. Comprehensive Problems Consider the following...
show your detailed work and how you arrived to the solution. Comprehensive Problems Consider the following information on Liquor Co. Debt: 4,000, 7% semiannual coupon bonds outstanding, $1,000 par value, 18 years to maturity, selling for 102 percent of par; the bonds make semiannual payments. Preferred Stock: 10,000 outstanding with par value of $100 and a market value of 105 and $10 annual dividend. Common Stock: 84,000 shares outstanding, selling for $56 per share, the beta is 2.08 The market...
For each of the following statements clearly indicate whether the statement is true or false. Provide...
For each of the following statements clearly indicate whether the statement is true or false. Provide a brief explanation to justify your answer. Your answer must begin with "True" or "False" followed by your explanation. Note that your explanation cannot just be a restatement of the question statement. a) A security with a beta of 0.8 can have a standard deviation of return that is greater than the market portfolio’s standard deviation of return. (Begin your answer with "True" or...
1) Which of the following is NOT a value-creating activity associated with the differentiation strategy? a....
1) Which of the following is NOT a value-creating activity associated with the differentiation strategy? a. intensive training programs to improve employee efficiency b. strong capability in new product development. c. rapid and timely deliveries to customers. d. procurement systems focused on finding the highest quality raw materials. 2) A certain marble quarry provides a unique type of marble that is richly colored and strikingly veined. It has been used for churches and public buildings throughout the world. The architect...
Please do not attempt to solve if you can not answer all!!! THE ENERGY BAR INDUSTRY...
Please do not attempt to solve if you can not answer all!!! THE ENERGY BAR INDUSTRY In 1986, PowerBar, a firm in Berkeley, California, single-handedly created the energy bar category. Positioned as an athletic energy food, it was distributed at bike shops and events that usually involved running or biking. The target segment was the athlete who needed an efficient, effective energy source. Six years later, seeking to provide an alternative to the sticky, dry nature of the PowerBar, a...
Everyday investment company Sharesies was launched in February 2017, after conducting research on New Zealanders’ attitudes...
Everyday investment company Sharesies was launched in February 2017, after conducting research on New Zealanders’ attitudes towards investing. Prior to launching the company, the co-founders interviewed over 200 people asking them “If I gave you $50 right now, and you had to do something with it in the next 5 minutes what would you do?” Only 5 out of 200 people chose an option to save or invest the $50. More popular options were bills, online shopping, coffees, vouchers, food,...
CASE: Sharesies: NZ investment platform Everyday investment company Sharesies was launched in February 2017, after conducting...
CASE: Sharesies: NZ investment platform Everyday investment company Sharesies was launched in February 2017, after conducting research on New Zealanders’ attitudes towards investing. Prior to launching the company, the co-founders interviewed over 200 people asking them “If I gave you $50 right now, and you had to do something with it in the next 5 minutes what would you do?” Only 5 out of 200 people chose an option to save or invest the $50. More popular options were bills,...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT