Why should the required rate of return for a capital budgeting problem be project specific? Doesn't the firm just have to satisfy an overall cost-of-capital requirement?
What will be an ideal response?
The required rate of return for a capital budgeting problem is project specific because the firm is viewed as a portfolio of projects owned by the shareholders. It is the shareholder's perspective that matters, and it is their opportunity cost that gives the required rate of return for a project. The question that the managers should ask is the following: If the shareholders were to receive the cash flows from the project directly, what risk would they associate with the cash flows? Notice that this immediately suggests that the required rate of return should be project specific and that it should reflect the market risk that continues to be present when an investor holds a large, well-diversified portfolio.
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On January 1 . 2014, Amber Inc purchased 30 percent of the outstanding common stock of Collar Corporation for $516,000 cash. Amber is accounting for this investment using the equity method. On the date of acquisition, the fair value of Collar' net assets was $1,240,000 . Amber has determined that the excess of the cost of the investment over its share of Collar' net assets is attributable to
goodwill. Collar' net income for the year ended December 31 . 2014, was $360,000 . During 2014, Collar declared and paid cash dividends of $40,000 . There were no other transactions between the two companies. On December 31 . 2014, the investment in Collar should be recorded as a. $396,000. b. $468,000. c. $612,000. d. $624,000.
When the credit card processor deposits the gross proceeds from credit and debit card sales ________
A) there will be no fee charged for the transaction B) the deposit is made on the last day of the month C) the total sales less the processing fee assessed equals the net amount of cash deposited D) the processing fees are deducted from the company's bank account by the processor
Subject-matter jurisdiction is:
a. created by a constitution or statute on the disputes a court can resolve b. relevant in civil litigation but not in criminal litigation c. voided upon appeal to the appropriate court of appeals d. also referred to as trial de novo e. applied to administrative agencies but not to state or federal trial courts
The supplier's selection of a production process does little to define its required technology, human resource skills, and capital equipment requirements
a. True b. False Indicate whether the statement is true or false