Following No. 12, please calculate PI pf the project. a. 0.51 b. 0.88 c. 0.99 d.
ID: 2728898 • Letter: F
Question
Following No. 12, please calculate PI pf the project. a. 0.51 b. 0.88 c. 0.99 d. 0.99 e. 1.05 f. 1.07 g. 1.11 14. Following No. 12, payback period of this project is a. 1 b. 2 c. 3 d. 4 e. 5 f. 6 g. 7 h. 8 i. 9 j. 10 years 15. Following No. 12, should the project be a. accepted b. rejected c. it cannot be decided. 16. You bought a stock for $34, and you received dividends of $0.14. The stock is now selling for What is your percentage return? a. 7% b. 8% c. 11% d. 15% e. 19% f. 21% g. 28% f. 30% g. 31% 17. Consider the following information on returns and probabilities: Invest 1/2 of your money in Asset A and 1/2 in Asset B. What is the expected return for the portfolio? a. 1.7 b. 2.9 c. 3.9 d. 4.6 e. 5.5 f. 6.9 g. 7.5 h. 9.0 i. 8.2 j. 11 18. Following No. 17, what is the standard deviation of the return on the portfolio? a. 0.58 b. 1.73 c. 2.6 d. 3.6 e. 5.9 f. 6.9 g. 7.6 h. 8.5 i. 9.6 j. 10.17 19. Consider an asset with a beta of 1.4, a risk-free rate of 0.4%, and a market return of 4.4%. What is the reward to risk ratio? a. 4 b. 6 c. 7 d. 8 e. 9 f. 10 g. 11 h. 12 i. 14 j. 16 20. Following No. 19, what is the expected return on the asset? a. 5 b. 6 c. 7 d. 8 e. 9 f. 10.5 g. 11.4 h. 12 i. 14.6 j. 16 21. Your company has preferred stock that has an annual dividend of $2.25. If the current price is $25, what is the cost of preferred stock? a. 5 b. 6 c. 7 d. 8 e. 9 f. 10 g. 11 h. 12 i. 14 j. 16Explanation / Answer
Answer 12.
IRR is the rate at which NPV of the project is 0.
So, 0 = -1,200,000 + 300,000/(1+i) + 300,000/(1+i)^2 + .. + 300,000/(1+i)^5
1,200,000 = 300,000 / i * (1 - (1/(1+i))^5 )
i = 7.9%
Answer 13.
Initial Investment = $1,200,000
Present Value of Cashflow = 300,000 / 0.12 * (1-(1/1.12)^5) = 1,081,432.86
PI = 1,081,432.86 / 1,200,000 = 0.90
Answer 14.
Payback Period = Initial Investment / Annual Cashflow
= 1,200,000 / 300,000 = 4 Years
Answer 15.
Since the IRR is lower than Required Rate of Return and PI is less than 1, therefore the project should be rejected.