Question

1. If you have a cost of capital of 10% and your project yields a positive NPV, what can you say for certain about the project?

A) The project will have an IRR above 10%.

B)The project should be accepted.

C)The project will have an IRR equal to 10%.

D)The project will have an IRR below 10%.

2. Your company has established a hurdle rate, or cost of capital of 15% for new investment projects. You have just analyzed a new potential investment and it has a net present value of $0.00 (zero). What is the correct decision for your company?

a)Not enough information to make this decision.

b)Reject the project, because it does not earn at least 15%.

c)The project at least meets the minimum criteria of 15%; you may consider accepting the project, after evaluating other alternatives and other factors.

d)Rework the cash flows (cook the books a little) to achieve a positive NPV.

3. Calculate the WACC for the following data: A company raised $100,000,000. $50,000,000 came from the sale of bonds which have a current yield of 8%. $25,000,000 came from the sale of common stock which has a cost equal to 14%. The final $25,000,000 came from the sale of preferred stock which has a cost equal to 10%. The company's tax rate is 50%.

A)8.00%

B)7.55%

C)9.17%

D)9.00%

4. You have $15,000 invested today. If you add $500 per month to your investments, after 30 years, assuming 8.1% annual interest, how much do you have total?

A)No solution

B)$267,168.00

C)$929,480.74

D)$1,031,552.64

Answer 1