The general rule in capital budgeting decisions is to

Select one:

A. accept projects with rates of return greater than the cost of capital.

B. reject projects with rates of return greater than the cost of capital.

C. accept projects as long as they have a positive rate of return.

D. reject projects after they have a positive rate of return.

Wagner Tools is analyzing the purchase of a new machine costing $155,000. The company expects to realize net savings of $30,000 per year for the next 7 years. What is Wagner's internal rate of return (IRR) on this investment?

Select one:

A. 6.72%

B. 7.32%

C. 8.22%

D. 9.52%

Churnham and Burnham, LLP is evaluating the purchase of a new computer system. System A will require an initial outlay of $100,000. Cash inflows are expected to be $10,000 at the end of year one, $20,000 at the end of year two, $30,000 at the end of year three, $40,000 at the end of year four, and $50,000 at the end of year five. System B will require an initial outlay of $50,000, with expected cash inflows of $10,000 at the end of year one, $20,000 at the end of year two, $15,000 at the end of year three, and $20,000 at the end of year four. The firm has a 10% required rate of return (the "hurdle rate"). Based upon net present value, and assuming only one system is needed, which computer system should Churnham and Burnham, LLP acquire?

Select one:

A. System A.

B. System B.

C. Neither System A nor System B.

D. Cannot be determined from the information provided.

When a corporation issues a new corporate bond, the higher the bond's rating:

Select one:

A. The higher the coupon interest rate that must be paid on the bond

B. The lower the coupon interest rate that must be paid on the bond

C. The coupon rate is totally unrelated to the bond rating

D. The bond will sell at a premium to its par value on the day of issue.

The amount of total corporate debt since World War II has

Select one:

A. increased substantially.

B. decreased significantly.

C. held fairly steady.

D. been mostly replaced with equity.