1. Montana Co. is considering a project with an initial cost of $4 million. The project will produce cash inflows of $1.2 million a year for five years. The firm has a weighted average cost of capital of 9%. Assume that the project has an average risk level as the whole firm. What is the net present value of the project?
$1.92 million
$1.22 million
$2.41 million
$0.67 million
2. The intercept of the security market line is equal to:
the market rate of return.
one.
the risk-free rate.
the market risk premium.
3. The risk premium for a security is based on which one of the following types of risk?
surprise
systematic
diversifiable
total
4. Utah Co. has a beat of 1.4. If the risk free rate is 2% and the market return is 10%, what is Utah Co’s cost of equity assume CAPM?
16.0%
14.5%
15.6%
13.2%
5. You would like to invest $20,000 and have a portfolio expected return of 10 percent. You are considering two securities, A and B. A has an expected return of 16 percent and B has an expected return of 8 percent. How much should you invest in stock A if you invest the balance in stock B to achieve the 10 percent portfolio return?
$4,500
$5,000
$7,000
$6,250