QUESTION 14 Projects S and L are both normal projects with an initial cost of $10,000, followed by a series of positive cash inflows. Project L's undiscounted net cash flows total $20,000, while S's total undiscounted flows are $30,000. At a cost of capital of 10%, the two projects have identical NPVs. Which project's NPV is more sensitive to changes in the cost of capital? Project L Both projects are equally sensitive to changes in the cost of capital since their NPVs are equal at all costs of capital. Neither project is sensitive to changes in the discount rate, since both have NPV profiles that are horizontal The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative IRRS. Projects QUESTION 15 If debt financing is used, which of the following is CORRECT? The percentage change in net operating income will be equal to a given percentage change in net income The percentage change in net income relative to the percentage change in net operating income will depend on the dividends. The percentage change in net income will be greater than the percentage change in het operating income The percentage change in sales will be greater than the percentage change in EBIT, which in turn will be greater than the percentage change in net income. The percentage change in net operating income will be greater than a given percentage change in net income QUESTION 16 A new company to produce state-of-the-art car stereo systems is being considered by Jagger Enterprises. The sales price would be set at 1.5 times the variable cost per unit; the VC/unit is estimated to be S2.50; and fixed costs are estimated at $120,000. What sales volume would be required in order to break even, i.e., to have an EBIT of zero for the stereo business? a. 96,000 b. 105.840 C. 86,640 d. 100,800 e. 91,200 QUESTION 17 Anson Jackson Court Company (AJC) The Anson Jackson Court Company (AJC) currently has $200,000 market value (and book value) of perpetual debt outstanding carrying a coupon rate of 6%. Its camnings before interest and taxes (EBIT) are $100,000, and it is a zero growth company, AJC's current cost of equity is 8.8%, and its tax rate is 40%. The firm has 10,000 shares of common stock outstanding selling at a price per share of $60.00 Refer to the data for the Anson Jackson Court Company (AJC). What is AJC's current total market value and weighted average cost of eapital? O a $800,000, 7.0% b. 5600,000; 8.0% C. $800,000; 7.5% Od: 5600,000; 7.5% e. $800,000; 8.0%