QUESTION 10

Montana Co. is considering a project with an initial cost of $4 million. The project will produce cash inflows of $1.2 million a year for five years. The firm has a weighted average cost of capital of 9%. Assume that the project has an average risk level as the whole firm. What is the net present value of the project?

		$1.92 million
		$1.22 million
		$2.41 million
		$0.67 million

4 points

QUESTION 11

The intercept of the security market line is equal to:

		the market rate of return.
		one.
		the risk-free rate.
		the market risk premium.

4 points

QUESTION 12

The risk premium for a security is based on which one of the following types of risk?

		surprise
		systematic
		diversifiable
		total

4 points

QUESTION 13

Utah Co. has a beat of 1.4. If the risk free rate is 2% and the market return is 10%, what is Utah Cos cost of equity assume CAPM?

		16.0%
		14.5%
		15.6%
		13.2%

4 points

QUESTION 14

You would like to invest $20,000 and have a portfolio expected return of 10 percent. You are considering two securities, A and B. A has an expected return of 16 percent and B has an expected return of 8 percent. How much should you invest in stock A if you invest the balance in stock B to achieve the 10 percent portfolio return?

		$4,500
		$5,000
		$7,000
		$6,250