Jenkins Security has learned that a rival has offered to supply a parking garage

Question

Jenkins Security has learned that a rival has offered to supply a parking garage with security of ten years for $40,000 up front and a further $20,000 per year. If jenkins Security offers to provide security for 8 years for an up front cost of $70,000 ad a seperate yearly payment, what is the maximum that this yearly payment can be so that Jenkin's offer matches he equivalent annual ammunity of their rival's offer? Assume a cost of capital of 5%

A. $3,989

B. $3,391

C. $3,590

D. $3,191

2. Different division with differing line of business use different costs of capital because their cost of equity is different and also because the__________could be different.

A. optimal volatility

B. optimal asset mix

C. optimal debt-equity ratio

D. optimal current ratio

Explanation / Answer

1. A

2. C

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