1. A capital budgeting project has a net present value of $10,000 and a modified internal rate of return of 13%. The project’s required rate of return is 11 %. The internal rate of return is ______ (Points : 1) Greater than 13 %Less than 11 %Between 11% and 13%Less than $10,0002. Zellar’s, Inc. Is considering two mutually exclusive projects, A and B. Project A costs$ 75,000 and is expected to generate $48,000 in year one and $45,000 in year two. Project B costs $80,000 and is expected to generate $34,000 on year one, $37,000 in year two, $26,000 in year three, and $25,000 in year four. Zellar, Inc.’s required rate of return for these projects is 10%. The internal rate of return for Project A is ________ (Points : 1) 11.43%13.87%15.81%17.45%3. Higgins Office Corp. Plans to maintain its optimal capital structure of 40 percent debt, 10 percent preferred stock, and 50 percent common equity indefinitely. The required return on each component source of capital is as follows: debt – 8 percent; preferred stock- 12 percent; common equity- 16 percent. Assuming a 40 percent marginal tax rate, what after tax rate of exchange must Higgins Office Corp. Earn on its investments if the value of the firm is to remain unchanged? (Points : 1) 12.40 percent12.00 percent11.12 percent10.64 percent4. Kinslow Manufacturing Company paid a dividend yesterday of $2.50 per share. The dividend is expected to grow at a constant rate of 5% per year. The price of Kinslow’s common stock today is $25 per share. If Kinslow decides to issue new common stock, flotation costs will equal $2.00 per share. Key’s marginal tax rate is 34 %. Based on the above information, the cost of retained earnings is _________ (Points : 1) 16.14%15.50%15.00%10.55 %5. Nargo Inc. Wants to replace a 7 year old machine with a new machine that is more efficient. The old machine cost $50,000 when new and has a current book value of $10,000. Margo can sell the machine to a foreign buyer for $12,000. Margo’s tax rate is 30%. The effect of the sale of the old machine on the initial outlay for the new machine is ________ (Points : 1) [$12,600][$11,400][$8,400]$06. A U. S. Company can borrow 10,000 pound in Great Britain for 6% interest, paying back 10,600 pounds in one year. Alternatively, the U.S. Company can borrow an equivalent amount of U.S. Dollars in the United States and pay 13% interest. Assuming the capital markets are efficient, estimate the expected inflation rate in the United States if inflation in Great Britain is expected to be zero. (Points : 1) 7%6.6%6.2%5.4%7. The net present value always provides the correct decision provided that ____________ (Points : 1) Cash flow are constant over the asset’s lifeThe required rate of return is greater than the internal rate of returnCapital rationing is not imposedThe internal rate of return is positive8. Your company is considering a replacement of an old delivery van with a new one that is more efficient. The old van cost $30,000 when it was purchased 5 years ago. The old van is being depreciated using the simplified straight line method over a useful life of 10 years. The old van could be sold today for $5,000. The new van has an invoice price of $75,000, and it will cost $5,000 to modify the van to carry the company’s products. Cost savings from use of the new van are expected to be $ 22,000 per year for 5 years. At which time the van will be sold for its estimated salvage value of $15,000. The new van will be depreciated using the simplified straight line method over its 5 year useful life. The company’s statutory rate is 35%. Working capital is expected to increase by $3,000 at the inception of the project, but this amount will be recaptured at the end of year five. What is the tax effect of selling the old machine? (Points : 1) A savings of $1,750A savings of $3,500Additional taxes paid of $1,750A tax savings of $1,2009. Jiffy Wax Corp. Can sell common stock for $15 per share and its investors require a 14 % return. However, the administrative or flotation costs associated with selling the stock amount to $2.40 per share. What is the cost of capital for Jiffy Wax if the corporation raises money by selling preferred stock? (Points : 1) 30.00%21.50%16.67%14.00%10. Nickel Industries is considering the purchase of a new machine that will cost $178,000, plus an additional $12,000 to ship and install. The new machine will have a 5 year useful life and will be depreciated using the straight line method. The machine is expected to generate new sales of $85,000 per year and is expected to increase operating costs by $ 10,000 annually. Nickel’s income tax rate is 40%. What is the projected incremental cash flow of the machine or year 1? (Points : 1) $54,800$60,200$66,350$68,200
1. A capital budgeting project has a net present value of $10,000 and a modified internal rateof return of 13%. The project’s required rate of return is 11 %. The internal rate of return is______…
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