Given the following data for a stock: beta = 0.9; risk-free rate = 4%; market rate of return = 14%; and Expected rate of return on the stock = 13%. Then the stock is:

	A.	overpriced
	B.	underpriced
	C.	correctly priced
	D.	cannot be determined

When a firm has the opportunity to add a project that will utilize excess factory capacity (that is currently not being used), which costs should be used to determine if the added project should be undertaken?

	A.	Opportunity cost
	B.	Sunk cost
	C.	Incremental costs
	D.	None of the above

QUESTION 11

1. The following are some of the shortcomings of the IRR method except:

   	A.	IRR is conceptually easy to communicate
   	B.	Projects can have multiple IRRs
   	C.	IRR method cannot distinguish between a borrowing project and a lending project
   	D.	It is very cumbersome to evaluate mutually exclusive projects using the IRR method

The following are disadvantages of using the payback rule except:

	A.	The payback rule ignores all cash flow after the cutoff date
	B.	The payback rule does not use the time value of money
	C.	The payback period is easy to calculate and use
	D.	The payback rule does not have the value additive property