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Question 1
Your answer is correct.
Genaro needs to capture a return of 40 percent for his
one-year investment in a property. He believes that he can sell the
property at the end of the year for $150,000 and that the property
will provide him with rental income of $25,000. What is the maximum
amount that Genaro should be willing to pay for the property?
$150,000
$137,500
$112,500
$125,000
Question 2
Your answer is correct.
The process of identifying the bundle of projects that
creates the greatest total value and allocating the available
capital to the projects is known as
capital rationing.
risk analysis.
budgeting.
rationing.
Question 3
Your answer is correct.
Capital rationing. You are considering a project that has an
initial cost of $1,200,000. If you take the project, it will
produce net cash flows of $300,000 per year for the next six years.
If the appropriate discount rate for the project is 10 percent,
what is the profitability index of the project?
0.09
1.09
2.09
2.18
Question 4
Your answer is correct.
What might cause a firm to face capital rationing?
If investors require returns for
their capital that are too high.
If a firm has several projects that
are expected to generate negative IRRs.
If a firm rejects some capital
investments that are expected to generate positive NPVs.
If a firm has more than one project
with a positive NPV.
Question 5
Your answer is correct.
How firms estimate their cost of capital: The WACC for a firm
is 19.75 percent. You know that the firm is financed with $75
million of equity and $25 million of debt. The cost of debt capital
is 7 percent. What is the cost of equity for the firm?
19.75%
32.50%
58.00%
24.00%
Question 6
Your answer is correct.
The cost of debt: Bellamee, Inc., has semiannual bonds
outstanding with five years to maturity and are priced at $920.87.
If the bonds have a coupon rate of 7 percent, then what is the YTM
for the bonds?
9.2%
4.5%
7.0%
9.0%
Question 7
Your answer is correct.
The cost of debt: Beckham Corporation has semiannual bonds
outstanding with 13 years to maturity and are currently priced at
$746.16. If the bonds have a coupon rate of 8.5 percent, then what
is the after-tax cost of debt for Beckham if its marginal tax rate
is 35%? Assume that your calculation is made as on Wall Street.
12.500%
12.890%
8.125%
6.250%
Question 8
Your answer is correct.
The cost of equity: Radical VenOil, Inc., has a cost of
equity capital equal to 22.8 percent. If the risk-free rate of
return is 10 percent and the expected return on the market is 18
percent, then what is the firm's beta if the firm's marginal tax
rate is 35 percent?
1.28
1.60
1.0
4.10
Question 9
Your answer is correct.
Which type of project do financial managers typically use the
highest cost of capital when evaluating?
New product projects
Market expansion projects
Efficiency projects
Extension projects
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