week6quiz - Question(TCO B A project has an up-front cost...

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Question: (TCO B) A project has an up-front cost of $100,000. The project's WACC is 12 percent and its net present value iss $10,000. Which of the following statements is most correct? Your Answer: a. The project should be rejected since its return is less than the WACC. b. The project's internal rate of return is greater than 12 percent. c. The project's modified internal rate of return is less than 12 percent d. All of the above answers are correct. e. None of the above answers is correct. Instructor Explanation: Statement b is correct; the other statements are incorrect. Statement a is incorrect; If the NPV>0, then the return must be >12%. Statement c is incorrect; if NPV>0, the MIRR>WACC. Points Received: 0 of 10 2. Question: (TCO B) The regular payback method has a number of disadvantages, some of which are listed below. Which of these items is not a disadvantage of this method? Your Answer: Lack of an objective, market-determined benchmark for making decisions Ignores cash flows beyond the payback period. Does not directly account for the time value of money. Does not provide any indication regarding a project's liquidity. Does not directly account for differences in risk among projects. Points Received: 10 of 10 3. Question: (TCO B) Assume that you plan to buy a share of XYZ stock today and to hold it for 2 years. Your expectations are that you will not receive a dividend at the end of Year 1, but you will receive a dividend of $9.25 at the end of Year 2. In addition, you expect to sell the stock for $150 at the end of Year 2.
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This note was uploaded on 04/22/2010 for the course FIN FI 515 taught by Professor Snider during the Spring '10 term at Keller Graduate School of Management.

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week6quiz - Question(TCO B A project has an up-front cost...

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