Question
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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