Multiple choice

1) The cost associated with each additional dollar of financing for investment projects is

A. the incremental return

B. the marginal cost of capital

C. risk-free rate

D. beta

2) The XYZ Company is planning a $50 million expansion. The expansion is to be financed by selling $20 million in new debt and $30 million in new common stock. The before-tax required rate of return on debt is 9%, and the required rate of return on equity is 14%. If the company is in the 40% tax bracket, what is the marginal cost of capital?

A. 14.0%

B. 9.0%

C. 10.6%

D. 11.5%

3) For the NPV criteria, a project is acceptable if the NPV is __________, while for the profitability index, a project is acceptable if the profitability index is __________.

A. less than zero, greater than the required return

B. greater than zero, greater than one

C. greater than one, greater than zero

D. greater than zero, less than one

4) A zero-coupon bond

A. pays no interest

B. pays interest at a rate less than the market rate

C. is a junk bond

D. is sold at a deep discount at less than the par value