What is the internal rate of return's assumption about how cash flows are reinvested?
a. They are reinvested at the firm's discount rate.
b. They are reinvested at the project's internal rate of return.
c. They are only reinvested at the end of the project.
d. They are reinvested at the required rate of return.
Which of the following statements is MOST correct?
a. A project with a NPV = 0 is not acceptable.
b. If a project's internal rate of return (IRR) exceeds the required return, then the project's net present value (NPV) must be negative.
c. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR.
d. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
Crandal Dockworks is undergoing a major expansion. The expansion will be financed by issuing new 15-year, $1,000 par, 9% annual coupon bonds. The market price of the bonds is $1,070 each. Crandal's flotation expense on the new bonds will be $50 per bond. Crandal's marginal tax rate is 35%. What is the pre-tax cost of debt for the newly-issued bonds?
a. 7.49%
b. 8.12%
c. 10.25%
d. 8.76%