3. The internal rate of return is the:

A) rate of return needed for a project to payback within the allotted time period.

B) rate computed by discounting the cash inflows and dividing by the initial investment.

C) rate of return that equals to firms weighted average cost of capital.

D) discount rate that causes the net present value of a project to equal zero.

1. Based on CAPM, which of the following is a true statement regarding risky equity assets?

A) The stocks total risk is measured by its Beta.

B) The firm specific risk of a stock can be reduced by diversification of investments.

C) Expected return of a companys stock should be determined by its firm specific risk.

D) Standard deviation (?) measures stocks systematic risk.

4. As the CFO of General Motor, you know your company has an overall cost of capital 9.8%. Which one of the following projects would you accept if you make your decision based on internal rate of return (IRR) and profitability index (PI) information as given below?

A) Project A with PI 98%

B) Project B with IRR 10%

C) Project C with IRR 9%

D) Project D with PI 10%

5. Which one of the following methods of raising capital is associated with tax benefit (reduce

tax burden) to the firm?

A) Issuing new common stocks

B) Issuing new preferred stocks

C) Issuing new corporate bonds

D) Keeping more retained earnings in the firm