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Part II: Short Problems begins here–Answer 5 of the following 8 questions @ 8 points each. Select yes if you understand the instructions, and continue the exam.

The major benefit of diversification is the:

Part 2: Quantitative ProblemsDo not answer more than 5 problem questions (only the first 5 questions will be counted).All non-MC quantitative questions require showing your work for full credit all answers must be legible to receive credit. Partial credit is awarded.All rate problems must be carried a minimum of 5 decimal places and final answers must be in % form.Round all final answers for $ problems to the nearest cent.

A project has a beta of 0.97, the risk-free rate is 4.1%, and the market risk premium is 8.1%. What is the project’s expected rate of return?

Mansi Inc. is considering a project that has the following cash flow data. What is the project’s payback period?  Year 0    1   2   3   Cash flows -$650 $300 $325 $350

You are considering two mutually exclusive, equally risky, projects. Both have IRRs that exceed the WACC. Which of the following statements is CORRECT? Assume that the projects have normal cash flows, with one outflow followed by a series of inflows.

If a firm earns the WACC on its assets, then:

Teall Development Company hired you as a consultant to help them estimate its cost of capital. You have been provided with the following data: D1= $1.45; P0 = $28.00; and g = 6.50% (constant). Based on the DCF approach, what is the cost of equity from retained earnings?

Other things equal, a firm’s sustainable growth rate could increase as a result of:

A firm’s debt has a par value of $1,000,000.  The market value of this debt is $1,100,000. The coupon rate is 7% and the debt has 8 years left to maturity. Interest is paid annually. The tax rate is 40%. There are 100,000 shares of stock outstanding with a par value of $20 per share. The per share stock price is $25. What should be the approximate debt ratio for this firm?