Year 1 2 3 cash flows 500 150 200 300 a 142 years b

This preview shows page 4 - 7 out of 8 pages.

de test 2 wk 8.pdf

Year0123Cash flows­$500$150$200$300A1.42 yearsB1.58 yearsC2.50 yearsD1.93 yearsE2.12 yearsQUESTION:6[QUESTION BANK ID:269625]TYPE:MULTIPLE CHOICECORRECT
A firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky,and not repeatable. The CEO wants to use the IRR criterion, while the CFO favors the NPV method. You were hired to advisethe firm on the best procedure. If the wrong decision criterion is used, how much potential value would the firm lose?WACC:6.00%Year01234CF­$1,025$380$380$380$380CF­$2,150$765$765$765$765A$188.68B$198.61C$209.07D$219.52E$230.49QUESTION:7[QUESTION BANK ID:269617]TYPE:MULTIPLE CHOICECORRECTDobson Dairies has a capital structure which consists of 60 % long­term debt and 40 % common stock. The company’s CFOhas obtained the following informationThe before­tax yield to maturity on the company’s bonds is 8 %The company’s common stock is expected to pay a $3.00 dividend at year end (D= $3.00), and the dividend is expectedto grow at a constant rate of 7 % a year. The common stock currently sells for $60 a shareAssume the firm will be able to use retained earnings to fund the equity portion of its capital budgetThe company’s tax rate is 40 %What is the company’s weighted average cost of capital (WACC)?1SLMessengerStatus (busy/available)
QUESTION:8[QUESTION BANK ID:269634]TYPE:MULTIPLE CHOICECORRECT

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture