Q1 If a company has a cost of capital of 12%, their minimum rate of return (hurdle rate) is expected to be?

a. 11%

b. 11.9%

c. 12%

d. Greater than 12%

Q2 Valentinos Stage Productions is taking on a new project. The project is expected to increase net income by $1,000,000 for each of the next 3 years. The equipment needed will cost $7,000,000. Valentinos hurdle rate is 12% and has the following capital structure.

Bond issuance:	20% of total funds, requires 15% interest per year
Bank loan:	60% of total funds, requires 9.5% interest per year
Preferred Stock issuance:	20% of total funds, requires 5% dividend per year

What is Valentinos weighted average cost of capital?

a. 10.1%

b. 8.0%

c. 9.7%

d. 8.4%

Q3 Valentinos Stage Productions is taking on a new project. The project is expected to increase net income by $1,000,000 for each of the next 3 years. The equipment needed will cost $7,000,000. Valentinos hurdle rate is 12% and has the following capital structure.

Bond issuance:	20% of total funds, requires 15% interest per year
Bank loan:	60% of total funds, requires 9.5% interest per year
Preferred Stock issuance:	20% of total funds, requires 5% dividend per year

What is Valentinos average rate of return on the new project?

a. 9.29%

b. 11.29%

c. 28.57%

d. 40.00%

Q4 Valentinos Stage Productions is taking on a new project. The project is expected to increase net income by $1,000,000 for each of the next 3 years. The equipment needed will cost $7,000,000. Valentinos hurdle rate is 12% and has the following capital structure.

Bond issuance:	20% of total funds, requires 15% interest per year
Bank loan:	60% of total funds, requires 9.5% interest per year
Preferred Stock issuance:	20% of total funds, requires 5% dividend per year

Should Valentino invest in the project?

a. No, the average rate of return does not exceed the hurdle rate

b. No, the average rate of return exceeds the hurdle rate

c. Yes, the average rate of return does not exceed the hurdle rate

d. Yes, the average rate of return exceeds the hurdle rate

Q5 Robinson Bottling Co. reported Sales of $220,000, Cost of Goods Sold of $87,000 (including depreciation expense of $10,000), and Office Expenses of $11,000. The tax rate is 15%. The company has no significant changes in Accounts Receivable, Inventory, Accounts Payable, Prepaid Expenses, or Unearned Revenue.

What are Robinsons net after-tax cash flows?

a. $103,700

b. $105,200

c. $110,800

d. $113,700