Objective type questions on cost of capital

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Reference no: EM1315611

Objective type questions on cost of capital and capital budgeting

1. The common stock of Eddie's Engines, Inc. sells for $25.71 a share. The stock is expected to pay $1.80 per share next month when the annual dividend is distributed. Eddie's has established a pattern of increasing its dividends by 4% annually and expects to continue doing so. What is the market rate of return on this stock?

a. 7%

b. 9%

c. 11%

d. 13%

e. 15%

2. The internal rate of return (IRR):

I. rule states that a typical investment project with an IRR that is less than the required rate should be accepted.

II. is the rate generated solely by the cash flows of an investment.

III. is the rate that causes the net present value of a project to exactly equal zero.

IV. can effectively be used to analyze all investment scenarios.

a. I and IV only

b. II and III only

c. I, II, and III only

d. II, III, and IV only

e. I, II, III, and IV

Reference no: EM1315611

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