13. What is the projects pay-back period (two decimals, no rounding)? a) 3.47 b) 2.74 c) 2.82 d) 1.26 e) None of the above

14. If the CAPM is used to estimate the cost of equity capital, the expected excess market return is equal to the: a) Return on the stock minus the risk-free rate. b) Market rate of return c) Difference between the return on the market and the risk-free rate. d) Beta times the market risk premium. e) Beta times the risk-free rate.

15. The weighted average cost of capital for a firm is the: a) Discount rate which the firm should apply to all of the projects it undertakes. b) Rate the firm should expect to pay on its next bond issue. c) Overall rate which the firm must earn on its existing assets to maintain the value of its stock. d) Maximum rate which the firm should require on any projects it undertakes. e) Rate of return that the firms preferred stockholders should expect to earn over the long term.

Ross Corporation is thinking of opening a new warehouse. The new equipment required has a net cost (depreciable basis) of 100,000. In addition, the company owns the building that would be used, and it could sell it for 120,000 after taxes if it decides not to open the new warehouse. The equipment for the project would be depreciated by the straight-line method over the project's 4-year life, after which it would be worth nothing and thus it would have a zero salvage value. No new working capital would be required, and sales revenues (150,000) and other operating costs (40,000) would be constant over the project's 4-year life. The project's cost of capital is 10%, and the tax rate is 35%. Based on Ross Corporation data, answer the questions 11-13 below. 11. What is the annual cash flow of the project for years 1 to 4? a) 55,250 b) 20,250 c) 85,000 d) 80,250 e) None of the above 12. What is the project's NPV (no decimal, no rounding)? a) 34,628 b) 35,382 c) 43,832 d) 24,362 e) None of the above