1. The expected rate of return on Kiwi Computers stock is 11 percent. If the risk free rate is 1.5, then what is the risk premium?

   1. 5%

   2. 4%

   3. 6%

   4. 2.5%

2. Cortez, Inc., is expecting to pay out a dividend of $2 next year. After that it expects its dividend to grow by 25 cents per year for the next 3 years What is the present value of dividends over the four-year period if the required rate of return is 9 percent? ( Do not round intermediate calculations . Round final answer to two decimal places.)

   1. 9.21

   2. 7.61

   3. 11.88

   4. 11.06

3. Elmer Sporting Goods is getting ready to produce a new line of golf clubs by investing $1.65 million. The investment will result in additional cash flows of $525,000, 612,000 and 1,000,000 over the next three years

   1. The project should be accepted if the required payback period is 2.4 years.

   2. The project should be rejected if the required payback period is 2.6 years.

   3. The project should be rejected if the required payback period is 2.4 years.

   4. After 3 years, the initial investment has not been paid back.

4. Glitter Inc. uses 30 percent common stock and 70 percent debt to finance their operations The aftertax cost of debt is 5 percent and the cost of equity is 13 percent . The management of Glitter Inc. is considering an expansion project that costs $1.2 million. The project will produce a cash inflow of $ 55,000 in the first year and 120,000 in each of the following 10 years (ie. 120,000 years 2 through 11). What is the WACC and should Glitter Inc. invest in this project?

   1. 8.5% don't invest

   2. 8.5% invest

   3. 7.4% don't invest

   4. 7.4% invest

   5. 10% don't invest