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NEW QUESTION: 1
Interstate Transport has a target capital structure of 50 percent debt and 50 percent common equity. The firm is considering a new independent project which has an IRR of 13 percent and which is not related to transportation. However, a pure play proxy firm has been identified that is exclusively engaged in the new line of business. The proxy firm has a beta of 1.38. Both firms have a marginal tax rate of 40 percent, and Interstate's before-tax cost of debt is 12 percent. The risk-free rate is 10 percent, and the market risk premium is 5 percent. The firm should
A. Accept the project; its IRR is greater than the firm's required rate of return on the project of 12.05 percent.
B. Reject the project; its IRR is less than the firm's required rate of return on the project of 16.9 percent.
C. Accept the project; its IRR exceeds the risk-free rate and the before-tax cost of debt.
D. Be indifferent between accepting or rejecting; the firm's required rate of return on the project equals its expected return.
E. Reject the project; its IRR is only 13 percent.
Answer: A
Explanation:
Explanation/Reference:
Explanation:
Calculate the required return, k(s), and use to calculate the WACC:
k(s) = 10% + 1.38(5%) = 16.9%.
WACC = 0.5(12.0%)(0.6) + 0.5(16.9%) = 12.05%.
Compare expected project return, to WACC:
Accept the project since IRR (13%) is more than the WACC (12.05%).

NEW QUESTION: 2

A. Option A
B. Option B
C. Option D
D. Option C
Answer: A

NEW QUESTION: 3
Which of the following is not a gram-negative bug?
A. Bordetella pertussis
B. Vibrio cholerae
C. Escherichia coli
D. Clostridium perfringens
Answer: D

NEW QUESTION: 4
Consider the signaling Group Information shown in the exhibit.

Which SAT command can you use to get the IP address of the Far-end Node of the Signaling group 50?
A. List ip-address nodes
B. List node-name all
C. List ip-interface nodes
D. Display board CLAN10
Answer: B

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