choose the right answer 13. Resnick Inc. is considering a project that has the f

Question

choose the right answer

13. Resnick Inc. is considering a project that has the following cash flow data. What is the project's payback?

Year                          0               1               2               3    

Cash flows         -$350       $200        $200        $200

a. 1.42           years

b. 1.58          years

c. 1.75           years

d. 1.93          years

e. 2.12           years

14. How much would $5,000 due in 25 years be worth today if the discount rate were 5.0%?

a. $1,476.52

b. $1,124.16

c. $1,183.33

d. $1,245.61

e. $1,311.17

15. Bosio Inc.'s perpetual preferred stock sells for $97.50 per share and it pays an $8.50 annual dividend. If the company were to sell a new preferred issue, it would incur a flotation cost of 4.00% of the price paid by investors. What is the company's cost of preferred stock for use in calculating the WACC?

a. 8.72%

b. 9.08%

c. 9.44%

d. 9.82%

e. 10.22%

Explanation / Answer

13)

Year Cash flows Cumulative cash flows 0 $             -350 $                                    -350 1 $               200 $                                    -150 2 $               200 $                                        50 3 $               200 $                                      250 Payback period =                                         1.75 Years 1+150/200

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