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# Which of the following statements is CORRECT In the

### Customer Question

Which of the following statements is CORRECT?
In the WACC calculation, we must adjust the cost of preferred stock (the market yield) because 70% of the dividends received by corporate investors are excluded from their taxable income.
We should use historical measures of the component costs from prior financings when estimating a company's WACC for capital budgeting purposes.
The cost of new equity (re) could possibly be lower than the cost of retained earnings (rs) if the market risk premium, risk-free rate, and the company's beta all decline by a sufficiently large amount.
The component cost of preferred stock is expressed as rp(1 - T), because preferred stock dividends are treated as fixed charges, similar to the treatment of debt interest.
The cost of retained earnings is the rate of return stockholders require on a firm's common stock.

Question 26 2 points Save
Blanchford Enterprises is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative), in which case it will be rejected.

Year: 0 1 2 3
Cash flows: -\$1,000 \$450 \$450 \$450

16.20%
16.65%
17.10%
17.55%
18.00%

Question 27 2 points Save
Which of the following statements is CORRECT?
Projects with "normal" cash flows can have only one real IRR.
Projects with "normal" cash flows can have two or more real IRRs.
Projects with "normal" cash flows must have two changes in the sign of the cash flows, e.g., from negative to positive to negative. If there are more sign changes, then the cash flow stream is "nonnormal."
The "multiple IRR problem" can arise if a project's cash flows are "normal."
Projects with "nonnormal" cash flows are almost never encountered in the real world.
Submitted: 6 years ago.
Category: Homework
Expert:  SteveS replied 6 years ago.

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SteveS, MBA
Category: Homework
Satisfied Customers: 453
Experience: MBA from Top 5 US Business School, Tutoring Experience for Over Two Years

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