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1-A project has an initial cost of $6,500. The cash inflows are $900, $2,200, $3,600, and $4,100 over the next four years, respectively. What is the payback period? (Points : 4)

1.73 years

2.51 years

2.94 years

3.51 years

3.94 years

2-Mutually exclusive projects are best defined as competing projects which: (Points : 4)

would commence on the same day.

have the same initial start-up costs.

both require the total use of the same limited resource.

both have negative cash outflows at time zero.

have the same life span.

3-Brubaker & Goss has received requests for capital investment funds for next year from each of its five divisions. All requests represent positive net present value projects. All projects are independent. Senior management has decided to allocate the available funds based on the profitability index of each project since the company has insufficient funds to fulfill all of the requests. Management is following a practice known as: (Points : 4)

scenario analysis.

sensitivity analysis.

leveraging.

hard rationing.

soft rationing.

4-Theresa is analyzing a project that currently has a projected NPV of zero. Which of the following changes that she is considering will help that project produce a positive NPV instead? Consider each change independently.

I. increase the quantity sold

II. decrease the fixed leasing cost for equipment

III. decrease the labor hours needed to produce one unit

IV. increase the sales price

(Points : 4)

I and II only

I and IV only

II, III, and IV only

I, II, and IV only

I, II, III, and IV

5-You own a portfolio that has $2,000 invested in Stock A and $1,400 invested in Stock B. The expected returns on these stocks are 14 percent and 9 percent, respectively. What is the expected return on the portfolio? (Points : 4)

11.94%

6 Portfolio beta is a weighted average of the betas of the individual securities which comprise the portfolio. However, the standard deviation is not a weighted average of the standard deviations of the individual securities which comprise the portfolio. Explain why this difference exists. (Points : 4)

7-The Turtle Cave currently has 160,000 shares of stock outstanding that sell for $60 per share. Assume no market imperfections or tax effects exist. What will the new share price be if the firm declares a 15 percent stock dividend? (Points : 4)