Reference no: EM132554688

Question 1: Which of the following statements is FALSE?

Select one:

A. Once a capital project is approved, the role of a financial manager is still essential

B. Capital projects are a long term investment

C. Capital projects are difficult to reverse

D. Ideas for investment projects stem mainly from the firm's finance department.

Question 2: Swerling Company is considering a project with the following cash flows:

Year Cash Flow

0 ($20,000)

1 $3,000

2 $4,000

3 $5,000

4 $6,000

5 $7,000

What is the net present value of the proposed Swerling Company project if the discount rate is 6%?

Select one:

A. $1,572

B. $572

C. $100,572

D. $10,572

Question 3: Georgia Food is exploring the possibility of bringing a new frozen pasta to the market. Which of the following items are not relevant for the project's analysis?

Select one:

A. Lost revenue from its frozen pizza sales since some customers will switch to purchase the new frozen pasta

B. Cost of advertising the new product

C. Cost of increasing shelf space at grocery stores

D. Market research funds the company has spent on testing the viability of the new product.

Question 4: A firm has a capital structure containing 40 percent debt, 10 percent preference shares and 50 percent ordinary shares. The firm's debt has a yield to maturity of 9.50 percent. Its preference share's annual dividend is $7.50 and the preference share's current market price is $50.00 per share. The firm's ordinary shares has a beta of 0.90 and the risk-free rate and the market return are currently 4.0 percent and 13.5 percent, respectively.

The firm is subject to a 40 percent marginal tax rate. What is the WACC for the firm?

A. 8.93%

B. 10.06%

C. 8.75%

D. 9.16%

Question 5: A project has an initial outlay of $400 000, annual net operating cash flows of $75 000 for eight years and a terminal value of $60 000. If the hurdle rate is 10% pa, the project's net present value (NPV) is:

Select one:

A. $400 119

B. $428 110

C. $28 110

D. $119

Question 6: The Commerce Company is evaluating a project with the following cash flows:

Year Cash Flow

0 ($10,000)

1 $2,000

2 $3,000

3 $4,000

4 $5,000

5 $6,000

What is the payback period of the proposed Commerce Company project?

Select one:

A. 1.5 years

B. 4.5 years

C. 3.2 years

D. 2.7 years