GHJ Inc is investing in a major capital budgeting project that will require the expenditure of 16
million. The money will be raised by issuing 2 million of bonds, 4 million of preferred stock, and
10 million of new common stock.
The company estimates is after-tax cost of debt to be 7, its cost
of preferred stock to be 9, the cost of retained earnings to be 14, and the cost of new common
stock to be 17. What is the weighted average cost of capital for this project?
A) 13.75 B) 12.20 C) 13.12 D) 14.23
Question 2
If the NPV (Net Present Value) of a project with one sign reversal is positive, then the project's IRR
(Internal Rate of Return) ________ the required rate of return.
A) could be greater or less than
B) must be less than
C) must be greater than
D) The project's IRR cannot be determined without actual cash flows.
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