nord content rid 2983730-1 - - - /courses/HGENHE/HC2091-Past%20Exam. 1-T3201 7.p
ID: 2616546 • Letter: N
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nord content rid 2983730-1 - - - /courses/HGENHE/HC2091-Past%20Exam. 1-T3201 7.pdf 7. The cost of capital for a project should: a) Be adjusted based on the size of the project b) Remain constant even if a decision on accepting the project is delayed for two years c) Be adjusted based on the risk of the project d) Meet or exceed the internal rate of return of the project H2C001 Business Finance 8. When the management of the firm evaluates the risk of a proposed project and justs the firm's WACC based on that evaluation to ascertain the required return for the project, they are using the approach: a) Subjective b) Pure play c) Insider d) Normative 9. If you invest $5000 now, and your investment pays 12% per annum, how much will you have in three years if compounded quarterly? a) $7128.80 b) $7218.80 c) $7812.80 d) $7182.80 10. Suppose your company has an equity beta of 0.58 and the current risk-free rate is 6.1%. If the expected market risk premium is 8.6%, what is your cost of equity capital? a) b) c) 13.11%. 10.11% 12.32%Explanation / Answer
7 Ans is c be adjusted based on the risk of the project. Explantion: A company should assess overall risk involved with the project and should use higher discount rate for comparitively high risk project and lower rate with low risk project 8 Ans is A Subjectve Explanation: While evaluating the project risk there is many models which require the subjective approach. Like Probability, mote carlo simultion etc. 9 FV = PV x (1+r)^n FV = 5000 x (1+.03)^12 (12%/4) FV = $7128.80 (3 x 4) Ans is A $7128.80 10 CAPM, Ke = Rf + Beta x Rmp Ke = 6.1% + 0.58 x 8.6% Ke = 6.1% + 0.58 x 8.6% Ke = 11.09% Ans is D
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