Question
1.The higher the risk of an investment project, the ________ for the project. A. higher the expected rate of return B. lower the expected rate
1.The higher the risk of an investment project, the ________ for the project.
A. | higher the expected rate of return |
B. | lower the expected rate of return |
C. | lower the minimum desired rate of return |
D. | higher the minimum desired rate of return |
2.The net present value of a project is zero. The minimum desired rate of return used to obtain the net present value of zero is 8%. Which of the following statements is TRUE?
A. | The project is desirable if the minimum desired rate of return is 10%. |
B. | The project is desirable if the minimum desired rate of return is 6% or 10%. |
C. | The project is desirable if the minimum desired rate of return is 6%. |
D. | The project is undesirable if the minimum desired rate of return is 6%. |
3. You can receive $10,000 today or $3,000 per year at the end of each year for the next five years. If the required rate of return is 10%, what option should be selected? (The present value of an ordinary annuity of one at 10% for five periods is 3.7908. The present value of one at 10% for five periods is 0.6209.)
A. | Receive $10,000 today. |
B. | Receive $3,000 per year for the next five years. |
C. | Neither option is desirable. |
D. | The results are the same for both options. |
4.Keisha Company is considering the following investment:
Estimated capitalinvestment$300,000
Estimated usefullife3 years
Estimated disposal value in 3years$10,000
Estimated annual savings in cash operating costs(end of year) $130,000
Minimum desired rate ofreturn12%
Present value of ordinary annuity of one, 3 periods at12%2.4018
Present value of one, 3 periods at12%0.7118
Assume straight-line depreciation is used. Ignore income taxes. The net present value of the investment is ________.
A. | $19.352 |
B. | $100,000 |
C. | $12,234 |
D. | $22,234 |
5.Apple Company pays 15% on the first $50,000 of pretax income and 30% on any additional pretax income. Apple Company currently earns $52,000. An investment under consideration is expected to add $20,000 in pretax income. What is the tax rate on the additional income from the investment?
A. | 22.5% |
B. | 30% |
C. | 43% |
D. | 15% |
6.A capital investment has a net present value of $1,000.00 at a required rate of return of 10%. At a 12% required rate of return, the net present value of the investment is $100.00. At a 14% required rate of return, the net present value of the investment is $0. The capital investment should be rejected if ________.
A. | the required rate of return is less than 14% |
B. | the required rate of return exceeds 12% |
C. | the required rate of return exceeds 14% |
D. | the required rate of return is less than 12% |
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