Question

21. Which of the following four projects should you invest in if you could invest in only one?

a. A profitability index of 1.0

b. A profitability index of 0.0
c. A profitability index of 2.0
d. A profitability index of negative 1.0

22. On an income of $100,000, your average tax rate was 20% and your highest marginal tax rate is 40%. Which of the following must be true?
a. Your tax paid is $40,000
b. You did not pay a 40% rate on any of your income

c. Your tax paid is $20,000

d. You did not pay a rate below 20% on any of your income

23. Each of the following are tools of the Federal Reserve EXCEPT

a. The ability to print money
b. Lowering the discount rate

c. Setting reserve requirements

d. Changing tax rates

24. You bought a stock for $20 per share 5 years ago and it is worth $40 today. What is your annualized rate of return (rounded to nearest percent)?

a. 10%

b. 15%

c. 20%

d. 100%

25. A project will be financed with 25% equity and 75% debt. The required equity return is 10% and the required debt return is 4%. What is the weighted-average cost of capital (WACC)?

a. 5.0%

b. 5.5%

c. 7.0%

d. 8.5%

26. National Economic Policy objectives include each of the following EXCEPT

a. Economic growth

b. High employment

c. Price stability
d. Free trade

Answer 1

21. Option c is correct A project should be selected if PI is greater than 1

22. Option c is correct option .Average Tax =Average Tax Rate*Oprating Income =20%*100000=20000

23. Option d Changing tax rate is fiscal policy and hence regulated by govt

24. Annualized Rate of Return =(FV/PV)^(1/n)-1 =(40/20)^(1/5)-1 =14.87% or 15% (Option b is correct option)

25. WACC =Weight of Equity*Cost of equity+weight of Debt*Cost of Debt =25%*10%+75%*4% =5.5%(Option b is correct)