41. XYZ Company is trying to decide between the following two mutually exclusivecapital budgeting projects

Project #3

01 2 3 4

|------------- |--------------- |--------------- |---------------- |

-1000 575 625 7501250

Project #4

0 1 2 3 4

|------------- |---------------- |-------------- |----------------|

-500275 325 500650

Using a required rate of return of WACC = 10%, the projects have the following NPV and IRR.:

Project #3 NPV = $1,456.51 IRR = 58.36%

Project #4 NPV = $838.21 IRR = 62.79%

Which of the following statements is true of these two mutually exclusiveprojects?

A. Project #3 should be accepted because of its higher NPV.

B. Project #3 should be accepted because of its higher IRR.

C. Project #4 should be accepted because of its lower IRR.

D. Project #4 should be accepted because of its higher NPV.

E. None of the above is true.

42. Refer to the projects described in question #41. If these two projects were independent, then:

A. only Project #3 should be accepted because of its higher NPV.

B. only Project #3 should be accepted because of its higher IRR.

C. only Project #4 should be accepted because of its higher IRR.

D. only Project #4 should be accepted because of its higher NPV.

E. both projects should be accepted.

43. For a given capital budgeting project and a given set of cash flows (initial, operating, and terminal), the higher the cost of capital (WACC):

A. the higher the NPV.

B. the lower the NPV.

C. the higher the IRR.

D. then both A and C.

E. then both B and C.

44. Assume you are analyzing a corporate bond with the following characteristics:

Par value $1000

Coupon rate 8% per year

Payment schedule semiannual

Maturity 5 years.

If the market price for this bond is $950, then:

1. the yield-to-maturity will be less than 8%.
2. the yield-to-maturity will be more than 8%.
3. the yield-to-maturity will be equal to 8%.
4. the yield-to-maturity will be equal to $1000.
5. none of the above is true.

45. Refer to the bond described in #44. Assume that your required rate of return on this bond is 8% per year, compounded semiannually. With this required rate of return:

A. the value of the bond will be equal to $1000.

B. the value of the bond will be less than $1000.

C. the value of the bond will be greater than $1000.

D. it is impossible to judge the value of the bond based on the information given.

E. none of the above is true.

46. Which of the following accounts is NOT included in a company's capital?

A. retained earnings C. paid-in capital

B. preferred stock D. All are part of capital.

E. None is a part of capital.

47.

0 1 2 34 years

|---------------|---------------- |---------------|----------------|

-3000275 325 500(650 + 1500)

Shown on the timeline above are the cash flows (initial, operating, and terminal) for a capital budgeting project. Given a weighted average cost of capital (WACC) of 8% per year, what is the project's net present value (NPV)?

A. - $1592.05 C. - $489.50

B. - $967.27 D. - $571.17

E. none of the above

48. Refer to question #47 above. What is the internal rate of return (IRR) of the capital budgeting cash flows?

A. 5.78% C. 8%

B. 2.39% D. 4%

E. none of the above

49. Refer to question #47 above. If the WACC were decreased to 6% (and the cash flows were left unchanged), then:

A. the IRR would increase.

B. the IRR would decrease.

C. the IRR would be unchanged.

D. the IRR would be zero. E. none of the above is true.