16. Which of the following best describes capital rationing?

a.

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

b.

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

c.

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

d.

When wealth is destroyed because capital

repayments on loans must be made earlier than anticipated

19.Mada has capital of 2m, three-quarters from shareholders who require a rate of return of 10 percent and one-quarter from lenders, who require an 8 per cent return. What is the WACC?

a.

18%

b.

5%

c.

9.5%

d.

9%

8. Mohammed Bayyoud corp. expects to earn $600,000 if the economy is good and only $200,000 if the economy is bad. Mohammed estimates a 65% probability of a good economy and a 35% probability of a bad economy. The NPV of the project with a discount rate of 15%? Can Mohammed accept the project?

a.

NPV $0, yes Mohammed should accept the projects

b.

NPV$10,000, Yes Mohammed Should Accept the project

c.

NPV $0, No Mohammed Should reject the project

d.

NPV $ 10,000, No Mohammed Should Accept the project