All the things mentioned are among the main differences between debt and equity.

The outlay of funds by the firm that is expected to produce benefits over a period of time longer than one year is called capital expenditure. Capital budgeting is the process of evaluating and selecting long-term investments which are consistent with the firm’s main objective of maximizing shareholders’ wealth. Investment consists all kinds of spendings made for acquiring, sustaining, and increasing production factors. Economic profit refers to the risk-adjusted present value of revenue minus all costs, including the opportunity cost of capital. Net income is equal to net earnings (profit) calculated as sales less cost of goods, selling, general and administrative expenses, operating expenses, depreciation, interest, taxes and other expenses. The correct answer is A.

According to internal rate of return technique, if a project is mutually exclusive, the project that provides the highest IRR (that is greater than the expected rate of return (discount rate used in NPV technique)) is approved. The correct answer is A.

Firms raise equity funds from their shareholders, who own a direct share of the net income and the net worth of the company. As shareholders hold residual claims on both the earnings and the assets of the business.

All of the factors mentioned are among the factors determining capital structure.

Some of the important factors affecting the decision amongst those alternatives are: • Peculiarities of the fund use (whether machinery or equipment purchase financing or construction, etc.)Some of the important factors affecting the decision amongst those alternatives are:

• Peculiarities of the fund use (whether machinery or equipment purchase financing or construction, etc.) 

• Bank lending capacity and relation with banks,

• Availability of security,

• Existing capital structure of the company,

• Capital market depth,

• Financial climate (Boom or boost financial market conditions),

• Legal and tax issues,

• The approach of top management with regards to equity sharing. 

Therefore, the correct option is C.

WACC= 0.30*0.08*(1-0.35)+0.20*0.12+0.50*0.15=0.1146

As it can be seen from the above calculation the WACC for LDP is 11.46%. The correct answer is E.

LIBOR is an average value of the interestrate which is calculated from estimates submitted by the leading global banks on a daily basis.

The main differences between debt and equity are the following:

• Debt is not an ownership interest in the firm. Creditors do not generally have voting power.

• The corporation’s payment of interest on debt is considered a cost of doing business and is fully tax deductible. Dividends paid to stockholders are not tax deductible.

• Unpaid debt is a liability of the firm. If it is not paid, the creditors can legally claim the assets of the firm. This action can result in liquidation or reorganization, two of the possible consequences of bankruptcy. Thus, one of the costs of issuing debt is the possibility of financial failure. This possibility does not arise when equity is issued.

The correct answer is C.

The following factors are considered while deciding the capital structure of the firm:

• Desired Level of Leverage: Financially, leverage refers to furnish the ability to use assets or funds with a fixed cost to increase the return to its shareholders. It is the basic and important factor, which affects the capital structure. It uses fixed-cost financing such as debt, equity and preference share capital and closely related to the overall cost of capital.
• Cost of Capital: Cost of capital is the main determining factor of the capital structure of a firm. Normally long-term finance such as equity and debt consist of fixed cost security issuance. When the cost of capital increases, the value of the firm will also decrease.

The following factors affect the cost of capital of a company:

• Nature of the business: Use of fixed interest/dividend bearing finance depends upon the nature of the business. If the business consists of a long period of operation, it will apply for equity than debt, and it will reduce the cost of capital.
• Size of the company: It also affects the capital structure of a firm. If the firm belongs to a large scale, it can manage the financial requirements with the help of internal sources. Wheraes, if it is small size, they will go for external finance. It consists of a high cost of capital.
• Legal requirements: Some companies, such as banks are legally restricted to raise funds from some sources.
• Requirement of investors: In order to collect funds from a different type of investors, it will be appropriate for companies to issue different sources of securities.

As can also be understood from the information given, “Nature of the business”, “Size of the company”, ”Legal requirements” and “Requirement of investors” are the factors affect the cost of capital of a company, so the correct answer is E. “Desired Level of Leverage” is considered together with the cost of capital  while deciding the capital structure of the firm.

Investment refers to all kinds of spendings made to acquire, sustain, and increase production factors

The average cost of the capital mix of debt and equity in financing decisions is the cost of capital. The correct answer is B.

With “classical” loans, after the drawing phase, the principal is paid gradually or by a single payment until a zero balance is achieved together with the interest for the period.

The funding provided by the banks are classified into short-term loans (payback period up to 1 year), medium-term loans (payback period 1 to 5 years) and long-term loans (payback period over 5 years, up to about 30 years such as for mortgage credits. Therefore, the correct option is A.

The bond-yield-plus-risk-premium approach provides a practical but highly subjective solution to the estimation of the cost of equity.

All the things mentioned are among the important features of common stock.

0.08 x (1 –  0.25)

0.08 x 0.75 = 0.06

Asymmetric information occurs when one party from a financial transaction has different information than the other.