Please answer the following questions:

1. Cost of capital can best be defined as:

a. compensation demanded by the investor of a firm before taxes and transaction costs are considered

b. compensation demanded by the investor of a firm after taxes and transaction costs are considered

c. compensation demanded by the investor of a firm before taxes only are considered

d. compensation demanded by the investor of a firm before taxes, transaction costs, and interest expense are considered

2. The after tax cost of debt on a 9% $200,000 loan given a 30% tax bracket would be:

a. 9%

b. 6.3%

c. 5%

d. 4%

3. Treasury bills are currently yielding 3.5%, the expected market return is 10%, and the firms beta is 1.50. Calculate the cost of capital for this firm according to the CAPM. a. 9.75%

b. 13.25%

c. 6.25%

d. 0.0625%

4. The payback period is best defined as:

a. the time it takes to receive cash flows sufficient to cover your initial investment

b. the time period required for total revenue received to equal the initial investment

c. the time period required for the present value of all cash flows to equal the initial investment

d. the time period required for the NPV to equal zero

5. A problem associated with the payback method is:

a. it usually requires less time to compute than that required by the net present value method

b. it doesnt consider cash flows after the payback period

c. it assumes that all cash flows are invested at the cost of capital

d. it uses the time value of money concept