If an investment costing $2,000 is expected to generate real cash flows of $900 p.a. for three years and prices are expected to increase at a rate of 10% p.a., what is the real required rate of return if the nominal rate of return is 15%?

Select one:

a.6%

b.5%

c.1.05%

d.4.55%

A method which involves calculating the annual cash flow of an annuity that has the same life as the project and whose present value equals the NPV of the project is the:

Select one:

a.chain of replacement method.

b.equivalent annual value method.

c.constant chain of replacement method.

d.None of the above.

Which of the following statements is false?

Select one:

a.The constant chain of replacement model assumes that the incumbent machines and their replacements are absolutely identical.

b.Retirement decisions involve evaluating when to abandon a project.

c.In replacement decisions the company must decide when its existing assets should be replaced.

Which of the following statements best describes the role of qualitative factors, such as company image, in the selection of projects?

Select one:

a.They are ignored because they are subjective.

b.They are useful to decision-makers but management is unable to quantify them.

c.They must be quantified in some manner before they can be of some use.

d.They are only to be used when deciding between projects with identical net present values.

Sunshine Systems stock sells for $68 per share. It is expected to pay a dividend of $10 per share next year, and to grow at 4% per year. What is the companys cost of equity capital (required rate of return of equity)?

Select one:

a.13.0%

b.13.4%

c.14.0%

d.18.7%