Choose the best option

5. Use the IRR method to select either compressor I or compressor II. Compressor Fixed cost Life Salvage value Annual operating costs MARR $7000 5 $1000 $4000 15% II $9000 10 0 $3500 a) Compressor I is preferred, because its increment of investment exceeds 15%. b) Compressor II is preferred, because its increment of investment exceeds 15%. c) Compressor I is preferred, because its rate of return exceeds 15%. d) Compressor II is preferred, because its rate of return exceeds 15%. e) None of the above. 6) If a company has returns of 17% and a WACC of 10%, then: a) The company is losing 7 cents for every dollar spent (-7%). b) There is no debt. c) The company is profiting 7cents for every dollar spent (7%) d) The equity cost is 7% 7) If X company's debt was $240 billion, its market CAPM (or equity value) is $60 billion. Then: a) X's WACC = (80% +20%)/2 b) X is expected to lose 20% c) X finances operations with 20% equity and 80% debt. d) X finances operations with 75% equity and 25% debt