6. Which of the following statements is correct? A) Net present value increases as the cost of capital increases. B) Risk is not important in estimating the cost of capital. C) The dividend growth model for estimating the cost of equity capital is extremely sensitive to dividend growth rate 7. Rattle me Bones, Inc. sold a 20-year bond issue 10 years ago. It pays a 10% semi-annual coupon and has a $1,000 face value. If the current price per bond is $1,089, what is the firm's after-tax cost of debt if the firm's tax rate is 35% and the floatation cost is 1% of the current market price? A) 8.81% C) 5.42% B) 5.21% D) 5.73% 8. Given the following information, what is the firm's weighted average cost of capital? Weight of debt = 28.57%; weight of equity = 71.43%; cost of equity = 15%; cost of debt before tax = 12%; tax rate = 35%. A) 11.28% C) 12.94% B) 11.45% D) 12.79% Use the following information to answer next three questions You are considering the purchase of an investment that would pay you $2,500 per year for Years 1-4, $1,900 per year for Years 5-7, and $1,500 per year for Years 8-10. If the investment costs you $18,000 and you require a 15 percent rate of return; 9. What is the project's NPV? According to NPV rule, should you take this investment? A) -$7,094.69, No C) $1,592, Yes B) $6,965.97, Yes D) $1,093, No You are considering the purchase of an investment that would pay you $2,500 per year for Years 1-4, $1,900 per year for Years 5-7, and $1,500 per year for Years 8-10. If the investment costs you $18,000 and you require a 15 percent rate of return: 10. What is the project's IRR? According to IRR rule, should you take this investment? A) 8.74%, No C) 4.05%, No B) 2.41%, No D) 16.11%, Yes