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Question 14 2 pts In order to start a new project, your firm has purchased an expensive piece of equipment. If the corporate tax rate is 30%, which of the following depreciation schedules will result in the highest net present value for the project? 0 Year1: 2596; Year 2: 2596; Year 3: 2596; Year 4: 25% 0 Year!: 3596; Year 2: 30%; Year 3: 2596; Year 4: 10% 0 Year1: 20%; Year 2: 2096; Year 3: 2096; Year 4: 2096; Year 5: 20% 0 Year1. 3096; Year 2: 2596; Year 3: 2096; Year 4: 1596; Year 5: 10%Question 16 2 pts Over the past three years, the annual risk-free rate of return has been 4.0%, 4.0%, and 4.0%. The annual rate of return on stock ABC has been 11.0%, 18.0%, and 4.0%. The annual rate of return on stock XYZ has been 8.0%, 14.0%, and 11.0%, implying an expected return of 11.0% and a standard deviation of 3.0%, what is the expected return of a portfolio that invests $300,000 in stock ABC and $100,000 in stock XYZ? o 5.7% o 9.2% o 11.0% o 15.0%

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Answer #1

Depreciation in a non-cash expenditure. It does not lead to outflow of cash but since you get tax savings on depreciation amount, it reduces outflow of cash.

All future cash flows are discounted under NPV, in order to get highest NPV, cash flows should occur as early as possible.

Hence, the correct answer is Year 1: 35%, Year 2: 30%, Year 3: 25%, Year 4: 10%

Expected Return on Stock ABC = (11+18+4)/3 = 11%

On XYZ = 11%

Hence, expected return on portfolio = 11%

The correct answer is 11%

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