You have analyzed an investment opportunity that will cost $50,000 to undertake. By the end of year 5, the investment will have paid for itself. After that the investment will continue to generate cashflows. The risk of the project is about 10%. If the firms after-tax cost of debt is 3% and its cost of equity is 12%, should the project be accepted?

Select one:

a. Yes because the WACC is less than the risk of the project.

b. No because cost of financing is higher than the projects return.

c. Yes because the investment is low risk and will pay for itself after only five years.

d. No because the risk of the project is higher than the cost of debt.

e. Without further information it is impossible to answer.

You are forming a portfolio of two stocks. Both stocks have a standard deviation of returns of 20% and expected returns of 16%. The coefficient of correlation between returns on the two stocks is .2. If you put 25% of your money in one stock and 75% in the other, what is the portfolio standard deviation of returns?

Select one:

a. 16.7%

b. 16%

c. 2.8%

d. 28%

You are borrowing $100,000 at 5% interest EAR to be repaid over 20 years in equal annual payments of blended principal and interest. Each payment is $8,024.26. Payments are to be made at the end of each of the next 20 years. What is the interest component of the 12th payment?

Select one:

a. $2,556.61

b. $3,298.77

c. $1,225.93

d. $2,851.75

e. None of the above

You are analyzing an investment opportunity for your firm. The investment will cost $10,000 to undertake and will produce a cashflow of $2000 at the end of every year for the next 6 years. What is the internal rate of return?

Select one:

a. About 4%

b. About 4.5%

c. About 5%

d. About 5.5%

e. None of the above.