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1. Suppose that a project costs $40,000 and generates annual cash flows of $15,000 for four years at an opportunity cost of capital of 12

1.

Suppose that a project costs $40,000 and generates annual cash flows of $15,000 for four years at an opportunity cost of capital of 12 percent. What is the profitability index for this project?

) A. 0.1189

B. 0.1219

C. 0.1518

D. 0.1425

E. None of the above.

2.

Investors require an after-tax rate of return of 10% on their stock investments. The tax rate on dividends is 28%, while capital gains escape taxation. A firm will pay $2 per share in dividends one year from now, after which the stock is expected to be at a price of $20. What is the expected before tax rate of return on the stock investment for a oneyear holding period?

A. 16.20%

B. 17.50%

C. 12.87% 5

D. 11.22%

E. None of the above.

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