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You are evaluating whether to retire your current computer modem product and replace it with a new modem that incorporates new features. Which of the
You are evaluating whether to retire your current computer modem product and replace it with a new modem that incorporates new features. Which of the following would be relevant to your decision-making process? A. An expected increase in net working capital investment of $3,000. B. An expenditure of $10,000 related to initial market survey of the marketability of new modem product C. Opportunity costs regarding an equipment you own with a market value of $30,000 that can be used to build the new modems. 1. D. A and C Which of the following statements is correct? A. Assuming a project has conventional cash flows, the NPV will be positive if the IRR is greater than the cost of capital B. Generally, an independent project not acceptable by the NPV method will be acceptable by the IRR method C. If IRR k (the cost of capital), then NPV = 1. D. If NPV 0, then PI 0. 2. Which of the following is not correct? A. The cost of equity is the return that equity investors require on their equity investment in the firm B. The cost of equity can be found by either the dividend growth approach or the SML approach C. The cost of debt is the return that lenders require on the firm's equity capital. D. The cost of preferred stock is the return that preferred stock holders require on the firm's debt capital. 3. Which of the following statements is not correct? A. Net present value increases as the cost of capital increases. B. Risk is important in estimating the cost of capital C. The dividend growth model for estimating the cost of equity capital is extremely sensitive to dividend growth rate 4. Rattle me Bones, Inc. sold a 25-year bond issue 10 years ago. It pays a 10% annual coupon rate compounded semi-annually and has a $1,000 face value. If the current price per bond is $989, what is the firm's after-tax cost of debt if the firm's tax rate is 35% and the floatation cost is 1% of the current market 5. price? A) ) 6.68% 8.05% D) 5.60% 7.73%
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