Part A:

				(a) No budget limitation	(b) subject to budget
Project	Required investment (in millions)	Risk-adjusted WACC	NPV (in millions)	Profitability Index	Ranking	Available Capital	Ranking
A	$200	H,	$50
B	100	H,	45
C	150	L,	40
D	130	A,	30
E	125	H,	20
F	100	A,	15
G	50	L,	10
H	120	L,	-5

Except for projects B and C are mutually exclusive, all the other projects are independent. The company estimates that its WACC is 10.5%. The company adjusts for risk by adding 2 percentage points to the WACC for high-risk projects, and subtracting 2 percentage points from the WACC for low-risk projects. The company has a limited capital budget at $600.

Select one:

a. A, B, D, F

b. B, C, D, F

c. A, B, D, F, G

d. B, C, D, E, H

e. B, D, F, G, H

Part B:

Which of the following statements is most correct?

Select one:

a. The constant growth model is inappropriate for mature companies with a stable history of growth.

b. The constant growth model is inappropriate for companies that have negative dividend growth rates.

c. The constant growth model is often appropriate for companies that never pay dividend.

d. The constant growth model is inappropriate for companies that the dividend growth rate is larger than its required rate of return on stock.

e. Two firms with the same dividend and growth rate should have the same stock price.