WorksheetsChapter 6: Long-Term Financing
Total questions: 19
Worksheet time: 10mins
the construction or purchase of a long-term asset, such as buildings and equipment
complementary projects
capital projects
mutually exclusive projects
intellectual property
involve situations in which the acceptance of one does not allow the acceptance of others
complementary projects
capital projects
mutually exclusive projects
intellectual property
intangible assets used by companies
complementary projects
capital projects
mutually exclusive projects
intellectual property
when two or more projects are dependent on one another
complementary projects
capital projects
mutually exclusive projects
intellectual property
the rate of return required by creditors
cost of debt
cost of capital
cost of equity
WACC
the required return of the owner’s in a company
cost of debt
cost of capital
cost of equity
WACC
the interest rate used to evaluate a capital project
cost of debt
cost of capital
cost of equity
WACC
the financing combination of a low cost of capital and maximum market value
optimal financial structure
WECC
optimal capital structure
WACC
calculated by multiplying the proportions of debt and equity times the capital cost for each
optimal financial structure
WECC
optimal capital structure
WACC
is used to determine how long it will take for the cash flows of a capital project to equal the original cost
Sunk cost
Net present value (NPV)
Payback method
Internal rate of return (IRR)
calculates the present value of cash flows for a project minus the initial investment
Sunk cost
Net present value (NPV)
Payback method
Internal rate of return (IRR)
an expense that has been paid that will not affect capital decisions
Sunk cost
Net present value (NPV)
Payback method
Internal rate of return (IRR)
the discount rate at which the net present value is zero
Sunk cost
Net present value (NPV)
Payback method
Internal rate of return (IRR)
decisions are made at company headquarters
Decentralized organization
Joint venture
Centralized organization
Diversification
allows company decisions to be made at lower levels of the organization
Decentralized organization
Joint venture
Centralized organization
Diversification
a merger between two or more companies in the same type of business
Decentralized organization
Horizontal integration
Centralized organization
Vertical integration
a company that expands through through increased involvement in different stages of production and distribution
Decentralized organization
Horizontal integration
Centralized organization
Vertical integration
an agreement between two or more companies to share a business structure
Diversification
Horizontal integration
Joint venture
Vertical integration
the offering of a variety of products or services
Diversification
Horizontal integration
Joint venture
Vertical integration
