Question 11 Not yet answered A firm is considering a new project. $4000 has been spent on a feasibility study to determine the costs and benefits of the project. In relation to the feasibility study, what is the incremental free cash flow (i.e. how many dollars is the firm better or worse off) from proceeding with the project? Marked out of 1.25 P Flag question Select one: a. $4000 per year b. $0 C. -$4000 d. $4000 Question 12 A share is expected to pay a dividend of $2.71 next year, and this dividend is expected to grow at the rate of 2% in perpetuity. If the current price of the share is $50.41, what is the cost of ordinary shares for the firm? Not yet answered Marked out of 1.25 Select one: P Flag question a. 9.45% a b. 7.48% 0 c. 6.32% d. 7.38% Question 13 The following data relates to two discretionary mutually exclusive projects, Projects A and B. The cost of capital is 7.3%. Which project should be accepted, and why? Not yet answered Marked out of 1.25 P Flag question Project A B NPV $155 $169 IRR 9.5% 8.2% Select one: a. Project A, because it will increase the value of the firm by 9.5%. b. Project B, because it will increase the value of the firm by $169. c. Neither project O O O d. Both projects. Question 14 a disadvantage of a corporation as a form of business Which of the following organisation? Not yet answered Marked out of 1.25 O P Flag question Select one: a. The owners have unlimited liability for the debts of the business. b. It is more costly and complicated to set up compared to a sole trader or partnership O c. The business ends when one of the owners dies. O d. The owners have limited liability for the debts of the business. Question 15 You buy a share for $19.99 and sell it exactly one year later for $22.25. Your total return on the investment was 20.21%. What was the value of dividends paid on the share during the year? Not yet answered Marked out of 1.25 Select one: p Flag question O a. $2.20 O b. $1.78 c. $2.41 o d. $2.00 Question 16 A company has issued a series of debentures which have a face value of $500 and pay a quarterly coupon at a coupon rate of 6%. What is the value of each coupon payment? Not yet answered Marked out of 1.25 Select one: P Flag question a. $30.00 O b. $14.50 c. $7.50 d. $15.00 Not yet answered Marked out of 1.25 Project Investment NPV Present value of future cash flows p Flag question A $118 $159 $41 B $164 $191 $27 C $158 $242 $84 D $139 $178 $39 E $113 $162 $49 What is the Profitability Index of Project A? Select one: O a. 0.81 O b. 0.74 O c. 1.28 d. 1.34 Question 18 Which of the following correctly completes this sentence? The goal of capital budgeting is to... Not yet answered Marked out of 1.25 p Flag question Select one: a. allocate the available capital to as many projects as possible. b. allocate the available capital to all projects that will increase the value of the firm. O c. allocate the available capital to the projects that will increase the value of the firm the most. O d. Either (b) or (c), depending on the nature of the projects and the amount of capital available. Question 19 Not yet answered A firm has division in two different industries - clothing and tourism. It is considering two projects, one in each industry. The following table shows the typical beta of firms operating wholly within those industries, along with the Internal Rate of Return of each project. The risk free rate of return is 3.5% and the expected return on the market is 9.9%. Marked out of 1.25 p Flag question Project Industry Beta IRR Clothing 0.8 9.02% B Tourism 1.6 13.34% What is the appropriate cost of capital to use as a discount rate to evaluate these projects? Select one: a. Project A: 8.6% Project B: 19.3% O Project B: 19.3% b. Project A: 11.4% c. Project A: 8.6% O Project B: 13.7% O d. Project A: 11.4% Project B: 13.7% Question 20 Which of the following cash flows is NOT an incremental cash flow associated with a project to change the design of the products that your firm manufactures and sells? Not yet answered Marked out of 1.25 P Flag question O Select one: a. The cost of a feasibility study which has been carried out to determine the costs and benefits of the project. b. The tax paid on the additional revenue from selling the redesigned product. c. The additional revenue received from selling the redesigned product. d. The cost of alterations to machines to manufacture the redesigned product. O O O