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Assuming that the expected market return is 11% and the risk-free rate of return is 8%, the cost of equity of a company which is 40% debt financed with a beta of 0.8 will be closest to:

Select one:

a. 6.24%

b. 12.16%

c. 10.4%

d. 4.16%

Assume that a company is 30% debt and 70% equity financed. The company has a 12% cost of equity and 9.5% after-tax cost of debt. It considers undertaking a project which has a life of 8 years. If the cash flows of the project are, on the average, spread evenly over the life of the project, the optimal cutoff period is closest to:

Select one:

a. 5.1 years

b. 6.1 years

c. 4.2 years

d. 3.9 years

Calculate the profitability index for the below projects and indicate your order of choices.

Project	Present Value	Investment
A	$145,000	$95,000
B	$135,000	$80,000
C	$175,000	$110,000

Select one:

a. B, A and C

b. B, C and A

c. C, B and A

d. A, C and B

proposes an optimal capital structure.

Select one:

a. Traditional Approach

b. Operating Net Income Approach

c. Modigliani and Miller Theorem with taxes

d. Pecking Order Theory

Suppose that a machine with an expected life of 6 years costs $50,000. If the machine has an operating expense of $4,500 each year and the opportunity cost of capital is 10%, the equivalent annual cost is closest to:

Select one:

a. $4,500

b. $16,000

c. $9,000

d. $12,500

Consider a project with the following cash flows:

C0	C1	C2	C3	C4
-15,000	6,000	6,000	6,000	6,000

If the appropriate discount rate for this project is 15%, then the NPV is closest to:

Select one:

a. -$2,130

b. $2,130

c. -$1,067

d. $1,067

......................... depicts the reltionship between the total risk of a portfolio as measured by the standard deviation of a portfolios returns, and its expected return.

Select one:

a. Security Market Line

b. Security Characteristic Line

c. None

d. Capital Market Line

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