1. A firm has $4,000,000 of equity and $5,000,000 of long term bonds. It's marginal tax rate is 35%. The firm's Cost of Equity is 8%. The firm has 2 bonds: $1,000,000 @ 5.0% (YTM, pre-tax) $4,000,000 @ 3.2% (YTM, pre-tax) What is the firm's WACC
a) 5.47%
b) 4.84%
c) 5.53%
d) Some other rate.
2. A firm is considering only 2 projects, both of which have positive a NPV. The firm only has enough capital to invest in one project. The firm should select the project with the lowest NPV.
a) True
b) False
3. The Profitability Index is calculated by summing all of the future estimated cash inflows generated by the project, and dividing that sum by the required investment amount.
a) True
b) False
4. A firm has two projects from which it is choosing. The firm should always select the project with the shortest Payback Period.
a) True
b) False