FINA 363 PostExam 2 Practice Questions
Capital Budgeting
investment. That is, the amount of initial investment is
$10
;
000
). If Riesling±s weighted
average cost of capital (WACC) is
5%
, what is the Net Present Value (NPV) of this project?
Yr 0
Yr 1
Yr 2
10
;
000
+2
;
000
+11
;
000
(a)
$1
;
716
:
45
(b)
$1
;
791
:
38
(c)
$1
;
882
:
09
(d)
$2
;
129
:
07
(e)
$2
;
721
:
09
2. Assume that Sangiovese Corporation has a cost of equity of
12%
and a pretax
cost debt of
4%
. The current tax rate for your ²rm is
25%
. Your ²rm has never issued, and does not plan
to issue any preferred stocks. The DebtEquity ratio of Sangiovese is
0
:
5
. (i.e.,
W
d
W
e
= 0
:
5
:
)
What is the Weighted Average Cost of Capital (WACC) of Sangiovese?
(a)
6
:
667%
(b)
7
:
500%
(c)
8
:
333%
(d)
9
:
000%
(e)
10
:
00%
3. Pinot Noir Industries has been evaluating a project with a cost of
$100
;
000
:
Estimated net
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 Spring '10
 Masoudie
 Net Present Value, Internal rate of return, Weighted average cost of capital, Average cost, weighted average cost

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