PLEASE SHOW WORK/CALCULATIONS!!!!!!!!!!!

1. Two mutually exclusive investments cost $10,000 each

and have the following cash inflows. The firms cost of

capital is 10%.

INVESTMENT

CASH INFLOW A B

YEAR 1

YEAR 2 $15,407

YEAR 3

YEAR 4 $19, 390

f

A. What is the net present value?

B.What is the internal rate of return of each investment?

C. which investment (s) should the firm make?

D. Would your answer be diffferent to c if the funds recieved in year 2 investment A could be reivested at 16%?

4. An increase of cost of capital will

A. decrease an investment's IRR.

B. decrease an investment's NPV

.C. Increase an investment's NPV.

D. increase an investment's IRR

.5. A firm should reject an investment if the internal rate of return on the investment is

A. greater than the interest rate.

B. greater than the cost of capital.

C. less than the cost of capital.D. less than the interest rate.

6. The optimal capital structure involves

A. maximizing the weighted average of the cost of funds

.B. minimizing the cost of all funds.

C. minimizing the weighted average of the cost of funds.

D. maximizing the cost of all funds.

7. If the net present values of two mutually exclusive investments are positive, a firm should select

A. the investment with the higher net present value.

B. neither investment.

C. both investments.

D. the investment with the higher present value

.8. The flotation costs of issuing new securities

A. encourage external financing.

B. decrease the cost of capital

.C. encourage the retention of earnings.

D. don't affect the cost of capital.

10. A firm should make an investment if the present value of the cash inflows on the investment is

A. less than the cost of the investment.

B. less than zero.

C. greater than the cost of the investment.

D. greater than zero.

16. Which of the following statements about the cost of debt is correct?

A. The cost of debt is equal to the firm's interest rate

.B. The cost of debt is less than the cost of equity.

C. The cost of debt is greater than the cost of equity.

D. The cost of debt is greater than the cost of preferred stock.

17. NPV may be preferred to IRR because

A. NPV excludes salvage value.

B. IRR excludes salvage value.

C. NPV makes more conservative assumptions concerning reinvesting

.D. IRR makes more conservative assumptions concerning reinvesting.

18. The internal rate of return will be higher if the cost of

A. capital is higher

.B. the investment is higher

.C. capital is lower

.D. the investment is lower.

19. Which of the following statements about the marginal cost of capital is correct?

A. The marginal cost of capital is constant once the optimal capital structure is determined.

B. The marginal cost of capital is a firm's cost of debt and equity finance

.C. The marginal cost of capital refers to the cost of additional funds

.D. The marginal cost of capital declines as flotation costs alter equity financing

.20. If the internal rates of return of two mutually exclusive investments exceed the firm's cost of capital,the firm should make

A. the investment with the lower IRR

.B. neither investment.

C. the investment with the higher IRR

.D. both investment