1. The "cost of capital is frequently referred to all of the following terms except: A. Prime rate B. Hurdle rate. C. Cutoffrate. D. Discount rate. 2. Which of the following statements best describes a firm's "cost of capital"? A. A minimum rate of retum a company nmist pay to attract investors and satisfy creditors. B. The maximum acceptable rate of retuum on nvestments. C. The calculated internal rate of return on investments. D. An interest rate the bank charges its best credit-worthy customers. 3. For a capital investment project to be acceptable on a quantitative basis, it ust generate a rate of retum: A. Less than the required rate of retun. B. Equal to or greater than the firm's cost of capital C. Equal to or less than the initial investment. D. Greater than the required rate of retum, but less than the cost of capital. 4. A capital budgeting investment project may provide "cash inflows" (ie. benefits) from A. incremental (new) revermes received as a result of the investment made. B. cost savings C. the salvage value of the investment at the end of its useful life. D. all of the above represent potential cash inflows realized due to the investment made. 5. Which of the following cash flow pattersepresents an annuity? $1,000$1,000 $1,000 $1,000 $1,000 $1,000 | 100 | 200 $ 300 | $ 400 | 500 | 00 A. "A" Above. . "B" Above. C. "C" Above. D. All three of these cash flow patterns can be defined as an annuity 6. Heitkamp & Brown, Inc. projects $561,651 ofnet cash benefits per year, for 5 years, on an investment (ie. net, after all expenses are deducted) Ifthe company desires a pre-tax rate of return of 14%, what is the maximum they should pay for this investment? Which Key Fonmula" to use here? In essence, what is the present value of the expected benefits given the required rate of retun? Show your work! A. ~$385.639 B. ~$561,651 C. ~$747,858 F. None of the the above. The correct answer is: D. ~$1,000,000 ~$1,928,193 7. Two study-enhancement academic products from Alabduldaye, Rispler &Wilson, Inc., Xand Y, are alike in every way except that the sales of X will start low and rise throughout its life, while sales ofY will be the same each year. Total sales volume over their five-year lives will be the same, as will selling prices, unit variable costs, cash fixed costs, and the initial investment. Assuming the same required rate of return for each academic product, the Net Present Value (NPV) ofproduct A. will always be less than that of product Y B. will always be the same as that of product Y C. will always be greater than that of product Y
