The Chris-Kraft Co

question 13

Multiple Choice

The Chris-Kraft Co. is financed entirely with equity, and the firm has a beta of 1.25. The current risk-free rate is 7 percent, and the expected market return is 15 percent. Chris-Kraft is considering an investment project with a risk that matches the firm's average risk, requires a net investment of $70,000, and has net cash flows of $18,000 per year for 8 years. Should Chris-Kraft invest in the project?

• A) Yes, since NPV = $5,726
• B) Yes, since NPV = $75,726
• C) No, since NPV = -$10,934
• D) No, since NPV = -$5,726

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Definitions:

Departments

Distinct units within an organization, each focusing on a specific area of the business or a particular line of products or services.

Calculate

To determine or ascertain by mathematical methods; compute.

Direct Expense

Costs that can be directly attributed to a specific product, service, or department within a business.

Indirect Expense

Costs that are not directly attributable to a specific product or service, such as utilities or administrative salaries.