Two mutually exclusive projects have the following projected cash flows.

Year Project A Project B

0 105,000 -100,000

1 31,250 0

2 31,250 0

3 31,250 0

4 31,250 0

5 31,250 199,000

If the required rate of return on the project is 10percent, which would be chosen and why?

1)Projet A because of the higher NPV

2)Project A because it has higher IRR

3)Project B because it has higher IRR

4)Project B because of higher NPV

5)Neither because both IRR's have less than the cost of capital

 

 

An inc. uses only equity capital and has two equally sized divisions. Division A's cost of capital is 10.0percent. Division B cost is 14.0percent and the corporate composite WACC is 12percent. All of division A's projects are equally risky and all of Division B's projects are also risky. However, the project of Division A are less riskier than the project of Division B. Which should the firm accept?

1)A division A project with a 9percent return

2)A divison B project with an 11percent return

3)A divison A project with 11percent return

4)A divison B project with 13 percent return

5)A divison B project with 12 percent return

 

When Will bonds sell at a discount?

1)Bonds never sell at a discount

2)The advantage f owning a bond is that you can never have a loss or profit if sold prior to its maturity date

3)The bond coupon rate of interest is less than the market rate of interest

4)The bond coupon rate of interest is more than the market rate of interest

 

A company is considering four average risk independent projects with the rates of return listed below. The companies WACC is 12.8percent. Which project is acceptable

Project Internal Rate of Return

1 15percent

2 14percent

3 13.75percent

4 12 percent

 

1)Project 1

2)All of them

3)None of them

4)Project 1 and two

5)Project 1,2 and 3