Question

QUESTION 1

Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?

		A project's IRR increases as the WACC declines.
		A project's NPV increases as the WACC declines.
		A project's MIRR is unaffected by changes in the WACC.
		A project's regular payback increases as the WACC declines.
		A project's discounted payback increases as the WACC declines.

QUESTION 2

Gul Corp. considers the following capital structure optimal: 40% debt; 50% equity; and 10% preferred stock. Gul’s bond currently sells in the market for $1150. The bond carries an annual coupon payment of 12 % of the face value which is paid in two semiannual payments. The bond will mature in 15 years and its face value is $1000. What is Gul's pre-tax annual cost of debt?

	1.	More than 12%
	2.	Exactly 12%
	3.	Less than 12% but more than 8%
	4.	5.00%

Answer 1

Hi

As per policy we will solve only one question here.

A project's IRR and MIRR increases as WACC increases.

A project's payback and discounted payback decreases as WACC decreases.

While NPV increases as WACC decreases.

Hence second option is correct here.

Thanks