Question 10 A project needs an initial outlay of $3000 for equipment and will net a cash flow of $250 for the next 15 years. At the end of the 15th year, there is a Salvage Value of $1000 for the equipment. What is the NPV of the project if the cost of capital is 15% p.a. effective (to the nearest dollar)?

a. -$1415

b. $1585

c. -$945

d. $2250

Question 11 Which of the following describes the need for capital budgeting?

a. The management of the company is against spending on projects at this time.

b. The company is aware of environmental issues and will only allocate to projects that are sustainable and for the good of the environment.

c. A companys resources are limited so that it will only choose between those projects that will deliver the highest wealth increase for the company.

d. The company should allocate to funds only to projects that produce a positive NPV as that will look good on any prospectus for potential new investors.

Question 12 Stanthorpe Apples Ltd plans to raise $4 million to purchase land and plant a new apple orchard. It will issue bonds with a term to maturity of 10 years. The face value per bond will be $1,000 and the coupon rate will be 7% per annum, paid semi-annually. Similar corporate bonds are trading at a yield to maturity of 9% per annum, compounded semi-annually. It is expected that these new bonds will trade at this rate. The cost of the bond issue is 2.5%. How many bonds will Stanthorpe Apples need to issue?

a. 4,716

b. 4,717

c. 4,713

d. 4,714