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Author Question: Texas Transport has five possible investment projects for the coming year. Each project is ... (Read 16 times)

chandani

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  • Posts: 541
on: Jul 10, 2018
Texas Transport has five possible investment projects for the coming year. Each project is
  indivisible.
 
  They are:
  Project Investment (million) IRR
  A 6 18
  B 10 15
  C 9 20
  D 4 12
  E 3 24
  The firm's weighted marginal cost of capital schedule is 12 percent for up to 6 million of
  investment; 16 percent for between 6 million and 18 million of investment; and above 18
  million the weighted cost of capital is 18 percent. The optimal capital budget is
  A) 28 million. B) 23 million. C) 18 million. D) 12 million.

Question 2

Operating leverage refers to
 
  A) the additional chance of insolvency borne by the common shareholder.
  B) financing a portion of the firm's assets with securities bearing a fixed rate of return.
  C) a high degree of variable costs of production.
  D) the incurrence of fixed operating costs in the firm's income stream.
Foundations of Finance ¦ Keown, Petty, Martin ¦ 9th Edition
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Fayaz00962

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Reply #1 on: Jul 10, 2018
Answer to Question 1

C

Answer to Question 2

D


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