Sample exam 515.

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A. initial outlay
B. differential cash flows over the project’s life
C. sunk costs
D. cost of capital.
21. Which of the following five indivisible projects should a company invest in, given a
capital budget constraint of $1 million? Project Initial outlay Profitability Net Present Value $
Index $ A 300,000 1.22 66,000 B 200,000 1.20 40,000 C 600,000 1.15 90,000 D 500,000
1.12 60,000 E 300,000 1.11 33,000 A. A, B & C B. A & B C. A & C D. A, B & D 22. Which
of the following measures is most suitable for choosing mutually exclusive projects of
unequal lives? A. Net Present Value B. Internal Rate of Return C. Accounting Rate of Return
D. Equivalent Annual Annuity 23. Which of the following is not used to evaluate or allow for
risk in capital budgeting? A. accounting rate of return. B. certainty-equivalent cash flows C.
simulation D. sensitivity analysis 24. If a 90-day bill with a face value of $100,000 is issued
at an annual discount rate of 6.75%, what will be the net proceeds of the issue after paying an
acceptance fee of $100? A. $98,124.87 B. $98,262.86 C. $92,807.42 D. $98,024.87

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25. A firm offers a prompt settlement discount of 1% to its debtors for accounts settled within
ten days of the invoice date. What is the annualised cost of the discount as a percentage of the
funds obtained through prompt settlement? Assume: (i) annual compounding; (ii) that debtors
taking the discount will pay on the tenth day after the invoice date and that those who don’t
take the discount pay 33 days after the invoice date. A. 12.00% B. 16.03% C. 12.82% D.
12.68% 26. A company has the following capital structure: Source After-tax cost Market
Value % per year $ million Debt 10 20 Preference shares 12 20 Ordinary shares 15 60
Accounts payable - 10 What is the company’s after-tax weighted average cost of capital? A.
13.40% B. 12.83% C. 12.33% D. 9.25% 27. A zero-coupon bond will be redeemed ten years
from now at its face value of $1,000. If the market yield for this type of investment is 8%, the
bond’s current market price is: A. $1,000.00 B. $1,064.18 C. $463.19 D. $577.59 28. The
most relevant alternative to acquiring the use of an asset through a financial lease is: A.
buying the asset B. borrowing the asset C. hiring the asset D. owning the asset The following
information relates to the next three questions. A company has seven million shares on issue
with a current market price of $9.44 per share. The company decides to raise additional share
capital of $6.3 million through a rights issue offered at $9.00 per share. 29. How many new
shares will be issued? A. 6.3 million B. 700,000 C. 630,000 D. 810,000 30. What will be the
value of one right (to acquire one new share)? A. $0.60 B. $0.837 C. $0.93 D. $0.40
31. What will be the theoretical ex-rights price per share? A. $9.90 B. $10.00 C. $9.40 D.
$9.60 32. Business risk is a direct result of a firm’s A. financing decisions B. investment
decisions C. debt-equity ratio D. price/earnings ratio The following information relates to the
next five questions. Alpha is an unlevered firm in which shareholders require a return of 14%
after-tax. Alpha is valued at $100,000 and corporate taxes are 30%.