16. Which of the following best describes capital rationing?

a.

When wealth is destroyed because capital repayments on loans must be made earlier than anticipated

b.

When funds are not available to undertake all the projects put forward by divisional management teams.

c.

When the financial markets are told by government not to lend beyond imposed limits

d.

When funds are not available to finance all wealth-enhancing projects

22. Marsaliss Entertainment Corporation has an after-tax cost of debt of 8 percent, a cost of preferred stock of 12 percent, and a cost of equity of 16 percent. What is the WACC, ka, for this company? The capital structure of Marsaliss company contains 20 percent debt, 10 percent preferred stock, and 70 percent equity.

a.

16%

b.

14%

c.

15%

d.

13%

13. MIKE is considering a project with the following expected cash flows, initial investment is $700 million, cash flow year 1 $200 million, cash flow year 2 $370 million, cash flow year 3 $225 million, cash flow year 4 $700 million. The projects WACC is 10 percent. What is the projects discounted payback?

a.

1.62 years

b.

4.09 years

c.

3.09 years

d.

3.15 years