1. All the following variables are used in computing the cost of debt EXCEPT a.
ID: 2638557 • Letter: 1
Question
1. All the following variables are used in computing the cost of debt EXCEPT
a. number of years to maturity.
b. risk-free rate.
2. A significant advantage of the internal rate of return is that it
a. avoids the size disparity problem.
b.. considers all of a project's cash flows and their timing.
3.
Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%.The modified internal rate of return for Project A is
Select one:
a. 19.19%.
b. 24.18%
4. Lithium, Inc. is considering two mutually exclusive projects, A and B. Project A costs $95,000 and is expected to generate $65,000 in year one and $75,000 in year two. Project B costs $120,000 and is expected to generate $64,000 in year one, $67,000 in year two, $56,000 in year three, and $45,000 in year four. Lithium, Inc.'s required rate of return for these projects is 10%. The equivalent annual annuity amount for project A is
a. $15,024.
b. $18,532
Explanation / Answer
ANSWER
1) b. risk-free rate.
2) b. considers all of a project's cash flows and their timing.
3) b. 24.18%
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