apple has a higher cost of debt than most companies in the coffee business. Which of...

apple has a higher cost of debt than most companies in the coffee business. Which of the following is true?

	A.	The business case needs to be adjusted for the cost of capital.
	B.	The business case is evaluated using NPV or IRR which already considers the cost of capital in the calculation or evaluation so no adjustment needed..
	C.	The cost of debt is not relevant to business cases.
	D.	The cost of debt is considered a flotation cost.

Expert Solution

Option (B) : The business case is evaluated using NPV or IRR which already considers the cost of capital in the calculation or evaluation so no adjustment needed.

Explanation:

~ A business case basically refers to the analysis of a new project based on certain factors which includes its investments, feasibility tests, cashflows patterns, risk involved, scope and areas to explore, etc.

~ the business cases often incudes a capital budgeting tools evaluation which includes NPV and IRR.

~ While using such capital budgeting tools, the prospective inflows from the project are discounted at the respective cost of capital of that project/business.

~ Hence, if a business as a higher cost of capital, the capital budgeting tool will automatically inculcate its effect into the evaluation as the project with higher cost of capital will tend to generate a lower discounted value of inflows and vice-versa.

jeff jeffy answered 2 years ago

There are a handful of top coffee companies but one of the most well-known companies is...

There are a handful of top coffee companies but one of the most well-known companies is Starbucks. The high-priced, high-quality coffee and beverages are quality products that keep customers returning for more. From their famous pumpkin spice latte to Frappuccino’s appeal to both adults and kids. To properly advertise their coffee, Starbucks uses multiple distribution channels. The most common method is the retail stores. Customers can order their coffee in advance via their mobile app and pick it up hot...

Which of the following statement regarding beta is NOT correct? Firms with higher fixed cost than...

Which of the following statement regarding beta is NOT correct? Firms with higher fixed cost than its peers would generally have higher equity beta. Firms with higher debt than its peers would generally have higher equity beta. Debt beta is usually low and almost equal to zero. Asset beta is always lower than equity beta.

4. Cost of debt versus cost of equity. Because the cost of debt is lower than...

4. Cost of debt versus cost of equity. Because the cost of debt is lower than the cost of equity, firms must increase their use of debt as much as possible to increase the firm’s value. What is your answer to this argument?

Which of the following statements is true about the debt ratio? a. The higher the debt...

Which of the following statements is true about the debt ratio? a. The higher the debt ratio, the less risk a company is taking in managing its operations. b. The debt ratio measures the percent of the company's debt that is financed by its assets. c. The use of the debt ratio decreases the financial leverage of a company. d. The debt ratio is useful in assessing the solvency and future earning potential of a company.

If the price is less than the average total cost but higher than the average variable...

If the price is less than the average total cost but higher than the average variable cost, then the firm is making a _________. a. loss and is making a negative contribution to fixed costs b. loss but will continue to produce in the short-run c. loss and will shut down in the short-run d. profit What two types of market scopes did Michael Porter use in developing his generic strategies model? Broad and narrow. Cost leadership and focus. Benefit...

Would the market-value debt ratio tend to be higher than the book-value debt ratio during a...

Would the market-value debt ratio tend to be higher than the book-value debt ratio during a stock market boom or a recession? Explain. Why would the WACC based on market values tend to be higher than the one based on book values if the stock price exceeded its book value? Which would you expect to be more stable over time, a firm’s book-value or market-value capital structure? Explain.

5. China has a higher GDP than Japan. However, Japan has a higher GDP/Capita than China....

5. China has a higher GDP than Japan. However, Japan has a higher GDP/Capita than China. Which of the two indicators represent a higher quality of life? Why?

Which business or industry sectors have the most startups companies that consider a small and medium...

Which business or industry sectors have the most startups companies that consider a small and medium enterprise (SME's)? To what extent the enterprise systems is important in this era? please support your answer by giving an example?

Are taxes necessary for the cost of debt financing to be less than the cost of...

Are taxes necessary for the cost of debt financing to be less than the cost of equity financing? I need clear answer not picture

Suppose that a firm has a price-earnings ratio which is higher than a value deemed to...

Suppose that a firm has a price-earnings ratio which is higher than a value deemed to be normal. Investors tend to infer from this information that a. the firm's bonds will increase in their ratings. b. the firm's bonds will decrease in their ratings. c. the firm's stock is over-valued and one should consider selling the stock. d. the firm's stock is under-valued and one should consider buying the stock. e. the firm will be paying increased dividends. For an...

Question