Fin 571 Week 5 Practice Quiz

In: Business and Management

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Multiple Choice Question 55 | | Your answer is correct. | | |
Genaro needs to capture a return of 40 percent for his one-year investment in a property. He believes that he can sell the property at the end of the year for $150,000 and that the property will provide him with rental income of $25,000. What is the maximum amount that Genaro should be willing to pay for the property?

| $137,500 |

| $125,000 |

| $112,500 |

| $150,000 | |

Multiple Choice Question 54 | | Your answer is correct. | | |
The process of identifying the bundle of projects that creates the greatest total value and allocating the available capital to the projects is known as

| risk analysis. |

| rationing. |

| capital rationing. |

| budgeting. | |

Multiple Choice Question 78 | | Your answer is correct. | | |
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?

| 2.09 |

| 0.09 |

| 1.09 |

| 2.18 | |

Multiple Choice Question 89 | | Your answer is correct. | | |
What might cause a firm to face capital rationing?

| If a firm rejects some capital investments that are expected to generate positive NPV’s. |

| If investors require returns for their capital that are too high. |

| If a firm has more than one project with a positive NPV. |

| If a firm has several projects that are expected to generate negative IRR’s. | |

Multiple Choice Question 59 | | Your answer is correct. | | |
How firms estimate their cost of capital: The WACC for a firm is 19.75 percent. You know that the firm is financed…...

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