Problem Two Use the following data to answer Question 15: C.B Inc. is considering the following machines: Machine A Machine B Cost $500,000 $260,000 Expected Life 6 years 3 years CF/Year $220,000 $200,000 Assume that the cost of capital is 12 percent. 15. Which project should the company choose? 10 points O A. Machine A B. Machine B C. Both Machines D. None of the above Back Next Page 3 of 5 Never submit passwords through Google Forms Problem Three Use the following data to answer Question 16: The following data applies to UK Company UK has a target debt-equity ratio of 0.5. - UK's 5-year bonds have a current yield of 11.15% and a par value of $1000. The market value of each bond is $1075.82. UK is a 5% constant growth firm that just paid a dividend of $3.00 UK's stock sells for $31.50 per share. The company's marginal tax rate is 40%. 16. The company's weighted average cost of capital is closest to: 10 points O A. 12.23% O B. 11.68% C. 12.0% D. None of the above Back Next Page 4 of 5 docs.google.com Use the following data to answer Questions 17 and 18: An analyst identifies the following cash flows for an average-risk project: Year0 $5,000 Year 1-2 $1,900 Year 3 $2,500 Year 4 $2,000 . 4 points 17. If the company's cost of capital is 12%, the project's discounted payback period is closest to: * A. 2.5 years O B.3.0 years C.3.9 years D. None of the above 5 points 18. If the company's cost of capital is 12%, the project's Modified Internal Rate of Return is closest to: * A 14.48% B. 18.00% C. 12.48% 0.18.48% E None of the above docs.google.com 19. Wreathfield, Inc. is choosing between two mutually exclusive projects. 4 points The firm has a cost of capital of 12%, and the risk of the projects is equivalent to the average risk of the firm. Project J has a cost of $12,000 and would generate 3-year cash flows of $4,000, $5,000 and $6,000 respectively. Project Khas a cost of $20,000 and would generate 5-year cash flows of $3,000. $3,000, $3,000, $5,000 and $8,000 respectively. Wreathfield should accept: A. Project J. B. Project K. C. Both projects J and K. D. Neither project J nor project K. O E. None of the above 4 points 20. Which of the following statements is most accurate regarding the net present value (NPV) and internal rate of return (IRR) capital budgeting methods? O A NPV assumes that cash flows can be reinvested at the project's IRR. BIRR assumes the cash flows are reinvested at the project's cost of capital C. NPV assumes the cash flows can be reinvested at the project's cost of capital D. None of the above
