Question 12 (1 point) Which of the following statements is CORRECT? A change in a company's target capital structure cannot affect its WACC. WACC calculations should be based on the before-tax costs of all the individual capital components. Flotation costs associated with issuing new common stock normally reduce the WACC. If a company's tax rate increases, then, all else equal, its weighted average cost of capital will decline. An increase in the risk-free rate will normally lower the marginal costs of both debt and equity financing. Question 13 (1 point) Warnock Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected. WACC: 10.00% Year 0 1 2 3 Cash flows -$1,050 $500 $400 $300 -$47.38 -$39.09 -$29.61 -$40.27 -$39.48 Question 14 (1 point) Which of the following statements is CORRECT? One defect of the IRR method is that it does not take account of cash flows over a project's full life. One defect of the IRR method is that it does not take account of the time value of money. One defect of the IRR method is that it does not take account of the cost of capital. One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future. One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid. Question 15 (1 point) Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: 10.00% Year 0 1 2 Cash flows -$650 $500 $500 $500 1.62 years 1.58 years 1.15 years 1.47 years 1.24 years Question 19 (1 point) Which of the following statements is CORRECT? If a project has "normal" cash flows, then its IRR must be positive. If a project has "normal" cash flows, then its MIRR must be positive. If a project has "normal" cash flows, then it will have exactly two real IRRs. The definition of "normal" cash flows is that the cash flow stream has one or more negative cash flows followed by a stream of positive cash flows and then one negative cash flow at the end of the project's life. If a project has "normal" cash flows, then it can have only one real IRR, whereas a project with "nonnormal" cash flows might have more than one real IRR. Question 30 (1 point) Project X's IRR is 19% and Project Y's IRR is 17%. The projects have the same risk and the same lives, and each has constant cash flows during each year of their lives. If the WACC is 10%, Project Y has a higher NPV than X. Given this information, which of the following statements is CORRECT? The crossover rate must be less than 10%. The crossover rate must be greater than 10%. If the WACC is 8%, Project X will have the higher NPV. If the WACC is 18%, Project Y will have the higher NPV. Project X is larger in the sense that it has the higher initial cost. Question 35 (1 point) Which of the following statements is CORRECT? Preferred stockholders have a priority over bondholders in the event of bankruptcy to the income, but not to the proceeds in a liquidation. The preferred stock of a given firm is generally less risky to investors than the same firm's common stock. Corporations cannot buy the preferred stocks of other corporations. Preferred dividends are not generally cumulative. A big advantage of preferred stock is that dividends on preferred stocks are tax deductible by the issuing corporation
