QUESTION 1 Assume a project has normal cash flows All else equal, which of the following statements is CORRECT A project's IRR increases as the WACC declines A project's NPV increases as the WACC declines A project's MIRR is unaffected by changes in the WACC A project's regular payback increases as the WACC declines A project's discounted payback increases as the WACC declines QUESTION 2 Gul Corp considers the following capital structure optimal 40 debt 50 equity and 10 preferred stock Guls bond currently sells in the market for $1150 The bond carries an annual coupon payment of 12 of the face value which is paid in two semiannual payments The bond will mature in 15 years and its face value is $1000 What is Gul's pre tax annual cost of debt 1 More than 12 2 Exactly 12 3 Less than 12 but more than 8 4 5 00

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Question: QUESTION 1 Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? A project's IRR increases as the

QUESTION 1

Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?

		A project's IRR increases as the WACC declines.
		A project's NPV increases as the WACC declines.
		A project's MIRR is unaffected by changes in the WACC.
		A project's regular payback increases as the WACC declines.
		A project's discounted payback increases as the WACC declines.

QUESTION 2

Gul Corp. considers the following capital structure optimal: 40% debt; 50% equity; and 10% preferred stock. Guls bond currently sells in the market for $1150. The bond carries an annual coupon payment of 12 % of the face value which is paid in two semiannual payments. The bond will mature in 15 years and its face value is $1000. What is Gul's pre-tax annual cost of debt?

	1.	More than 12%
	2.	Exactly 12%
	3.	Less than 12% but more than 8%
	4.	5.00%

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