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Finance week 5 homework Questions

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Question;1. Capital rationing. You are considering a project that has an initial cost of $1,200,000. If you take the project, it will produce net cash flows of $300,000 per year for the next six years. If the appropriate discount rate for the project is 10 percent, what is the profitability index of the project?a) 1.09b) 2.09c) 2.18d) 0.092. What might cause a firm to face capital rationing?a) If a firm rejects some capital investments that are expected to generate positive NPV?s.b) If investors require returns for their capital that are too high.3. How firms estimate their cost of capital: The WACC for a firm is 19.75 percent. You know that the firm is financed with $75 million of equity and $25 million of debt. The cost of debt capital is 7 percent. What is the cost of equity for the firm?a)19.75%b) 24.00%c) 58.00%4. he cost of debt: Bellamee, Inc., has semiannual bonds outstanding with five years to maturity and are priced at $920.87. If the bonds have a coupon rate of 7 percent, then what is the YTM for the bonds? a) 9.0%b) 9.2%

 

Paper#47670 | Written in 18-Jul-2015

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