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Question
Assume the following: (1) A firm is considering two projects, one with a 5-year life and the other with a 10-year life; (2) the cash flows of the two projects are equally risky by all definitions of the word "risky"; (3) the company uses 40 percent debt and 60 percent equity to finance the projects; (4) the debt used to finance any given project has a maturity equal to the life of the project; and (5) the term structure of interest rates has a sharp upward slope. This would suggest, other things held constant, that a lower discount rate should be used to find the NPV for the 5-year project than for the 10-year project.
a. True
b. False
Answer
This answer is hidden. It contains 5 characters.
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