Question

Based on the information from Question 47, what is the profitability index (PI) of this project?

a. 0.87

b. 1.11

c. 1.31

d. 1.83.

Based on the information from Question 47, what is the internal rate of return (IRR) of this project?

		a. 14.03%
		b. 17.56%
		c. 19.26%
		d. 21.78%

Based on the information from Question 47. What is the net present value (NPV) of the project?

		a. $28,830.29
		b. $30,929.26
		c. $36,931.43
		d. $39,905.28

A company is considering a new inventory system that will cost $120,000. The system is expected to generate positive cash flows over the next four years in the amounts of $35,000 in year 1, $55,000 in year 2, $65,000 in year 3, and $40,000 in year 4. The firm’s required rate of return is 9%. What is the payback period of this project?

		1.95 years
		2.46 years
		2.99 years
		3.10 years

An investor is forming a portfolio by investing $50,000 in stock A which has a beta of 1.50, and $50,000 in stock B which has a beta of 1.0. The return on the market is equal to 10% and treasure bonds have a yield of 5% (r_RF). What’s the portfolio beta?

		0.90
		1.20
		1.25
		1.50

Using the information in the previous question, what’s the required rate of return on the investor’s portfolio?

		10.25%
		11.00%
		11.65%
		11.25%

Answer 1

1)

2)

Investor Portfolio

Weight in stock A , Wa = 0.5 and Weight in Stock B, Wb = 0.5 (since 50,000 each)

a = 1.50, b = 1

Portfolio Beta = Wa * a + Wb * b = 0.5* 1.5 + 0.5*1 = 1.25

Required rate of return = Risk free rate + * Market risk premium = 5% + 1.25*(10% -5%) = 11.25%