1.

Which of the following should NOT be considered when calculating a firm's WACC?

Select one:

a. cost of carrying inventory

b. after-tax cost of bonds

c. cost of preferred stock

d. cost of common stock

2.

All the following variables are used in computing the cost of debt EXCEPT

Select one:

a. maturity value of the debt.

b. risk-free rate.

c. market price of the debt.

d. number of years to maturity

3.

A capital budgeting project has a net present value of $30,000 and a modified internal rate of return of 15%. The project's required rate of return is 13%. The internal rate of return is

Select one:

a. greater than $30,000.

b. greater than 15%

c. less than 13%.

d. between 13% and 15%.

4.

A significant advantage of the internal rate of return is that it

Select one:

a. provides a means to choose between mutually exclusive projects.

b. avoids the size disparity problem.

c. considers all of a project's cash flows and their timing.

d. provides the most realistic reinvestment assumption.

5.

Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%.The modified internal rate of return for Project A is

Select one:

a. 19.19%.

b. 29.63%.

c. 24.18%.

d. 26.89%.

5.

Which of the following statements is MOST correct?

Select one:

a. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.

b. A project with a NPV = 0 is not acceptable.

c. If a project's internal rate of return (IRR) exceeds the required return, then the project's net present value (NPV) must be negative.

d. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR.

6.

Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%. The equivalent annual annuity amount for project A is

Select one:

a. $12,989.

b. $18,532

c. $13,357.

d. $15,024.