This section is compulsory. Please ANSWER ALL questions from this section.

Please write a brief reason for each answer

QUESTION 11.

Multiple Choice. At an interest rate of 10%, which of the following cash flows should you prefer?

A. Option A B. Option B C. Option C D. Option D

	Year 1	Year 2	Year 3
A)	500	300	100
B)	100	300	500
C)	300	300	300
D)	Any of the above as they all add up to $900

QUESTION 12.

Multiple Choice.

After retirement, you expect to live for 25 years. You would like to have $75,000 income each year. How much should you have saved in the retirement to receive this income, if the interest is 9% per year (assume that the payments start one year after the retirement)?

A. $736,693.47 B. $6,352,567.22 C. $1,875,000 D. None of the above

QUESTION 13.

Multiple Choice.

Which of the following investment rules may not use all possible cash flows in its calculations?

A. NPV B. Payback period C. IRR D. All of the above

QUESTION 14.

Multiple Choice.

If the average annual rate of return for common stocks is 11.7%, and for treasury bills it is 4.0%, what is the market risk premium?

A. 15.8% B. 4.1% C. 7.7% D. None of the above

QUESTION 15.

Multiple Choice.

The graphical representation of CAPM (Capital Asset Pricing Model) is called:

A. Capital Market Line B. Characteristic Line C. Security Market Line D. None of the above

QUESTION 16.

Multiple Choice.

If the beta of Microsoft is 1.13, risk-free rate is 3% and the market risk premium is 8%, calculate the expected return for Microsoft.

A. 12.04% B. 15.66% C. 13.94% D. 8.65%

QUESTION 17.

Multiple Choice. The company cost of capital is the appropriate discount rate for a firm's:

A. low risk projects B. high risk projects C. average-risk projects D. all of the above

QUESTION 18.

Multiple Choice.

The market value of Charter Cruise Company's equity is $15 million, and the market value of its risk-free debt is $5 million. If the required rate of return on the equity is 20% and that on the debt is 8%, calculate the company's cost of capital. (Assume no taxes.)

A. 20% B. 17% C. 14% D. None of the above

QUESTION 19.

Multiple Choice. The after-tax weighted average cost of capital (WACC) is calculated using the formula:

A. WACC = (rD) (D/V) + (rE) (E/V) where: V = D + E B.WACC=(rD)(1-TC )(D/V)+(rE)(E/V)where:V=D+E C. WACC = (rD) (D/E) + (rE) (E/D) D. none of the above

QUESTION 20.

Multiple Choice. The payback period rule accepts all projects for which the payback period is:

A. Greater than the cut-off value B. Less than the cut-off value C. Is positive D. An integer