What will be the effect on the firm’s free cash flows

Assignment Help Financial Management

Reference no: EM131361282

If the depreciation rate increases from 10% to 12.5%, with all else held constant, what will be the effect on the firm’s Free Cash Flows (FCF)?

A. Because the firm’s Debt/Equity ratio is fixed in each year, and because the firm’s Equity is not affected by its depreciation rate, there will be no change in the FCFs.

B. FCF’s will decrease because the additional depreciation (which generates a tax shield) will be more than offset by the increase in Fixed Assets.

C. Since more assets will be purchase if the Depreciation increases, interest changes will be higher, reducing the FCFs.

D. FCFs will increase because higher Depreciation will generate higher tax shields.

Reference no: EM131361282

Questions Cloud

Find economic service life for both challenger and defender : Canadian Widgets makes rocker arms for car engines. The manufacturing process consists of punching blanks from raw stock, forming the rocker arm in a 5-stage progressive die, and finishing in a sequence of operations using hand tools. The net yearly ..

How is dracula different from the previous vampire texts : Name four sets of doppelgangers in these texts and say why they are juxtaposed. Make sure each pair is from a single text (e.g., two doppelgangers from The Shining, two from The Monk, etc.). Give four dualities (e.g., light and dark) in these text..

Which option has the highest expected monetary value : James Lawson's Bed and Breakfast, in a small historic Mississippi town, must decide how to subdivide (remodel) the large old home that will become its inn. Which option has the highest expected monetary value

What is the payoff for this strategy-what is the profit : An investor buys for $3 a put with a strike price of 35$ and sells for $1 a put with a strike price of $35. What is the payoff for this strategy? What is the profit?

What will be the effect on the firm’s free cash flows : If the depreciation rate increases from 10% to 12.5%, with all else held constant, what will be the effect on the firm’s Free Cash Flows (FCF)? Because the firm’s Debt/Equity ratio is fixed in each year, and because the firm’s Equity is not affected ..

Profitable to expand her organization production volume : If a manager is trying to determine whether it would be profitable to expand her organization’s production volume, should she compare the marginal revenues from the expansion to the organization’s marginal costs or average costs? And why?

What is the weighted average cost of debt : Hamilton Pawn Shop has two bond issues outstanding. Compute the weighted average cost of debt for HPS using the following data: What is the market value weight (percentage) for bond A? What is the weighted average cost of debt?

Identify three hindrances to the critical-thinking process : Identify three hindrances to the critical-thinking process. Determine methods for overcoming these hindrances. Identify a time in which you experienced a hindrance in critical thinking.

Firm dividends are expected to grow at an annual rate : To raise equity funds, a firm can sell common stock for $50 per share with a 10% flotation cost. The firm paid $2.00 dividend last year. The firm’s dividends are expected to grow at an annual rate of 5%. What is the firm’s cost of equity if it sells ..

User Account

All Pages