Question 1

Several companies, including Barnyard and Energy Solutions Corporation, are considering project A, which is believed by all to have a level of risk that is equal to that of the average-risk project at Barnyard. Project A is a project that would require an initial investment of $76,700 and then produce an expected cash flow of $109,600 in 2 years. Project A has an internal rate of return of 7.85 percent. The weighted-average cost of capital for Barnyard is 10.94 percent and the weighted-average cost of capital for Energy Solutions Corporation is 6.81 percent. What is the NPV that Energy Solutions Corporation would compute for project A?

		$12350.06 (plus or minus $10)
		$17525.89 (plus or minus $10)
		$165750.06 (plus or minus $10)
		$19369.76 (plus or minus $10)
		None of the above is within $10 of the correct answer

Question 2

The expected return on the market is 12.88%, the risk-free rate is 4.90%, and the tax rate is 15.00%. Semper Fun Sports has 300,000 common shares outstanding that are priced at $41.30 per share and have an expected return of 16.97% and an expected real return of 14.25%. Last year, Semper Fun Sports common stock had a return of 11.74%. The company also has 400,000 shares of preferred stock outstanding that are priced at $15.42 per share and have an expected return of 13.27% and an expected real return of 11.65%. Last year, Semper Fun Sports preferred stock had a return of 8.66%. Finally, the company has 10,000 bonds outstanding with a coupon rate of 9.60%, yield-to-maturity of 4.23%, current yield of 8.10%, face value of $1,000.00, and price of $1,210.00. What is the weighted average cost of capital for Semper Fun Sports?

		11.20% (plus or minus 0.02 percent)
		10.95% (plus or minus 0.02 percent)
		12.25% (plus or minus 0.02 percent)
		10.82% (plus or minus 0.02 percent)
		None of the above is within .02 percentage points of the correct answer