OK, Inc Uses One-Third Debt and Two-Thirds Common Stock to fiNance

question 334

Multiple Choice

O.K., Inc. uses one-third debt and two-thirds common stock to finance its operations. The after-tax cost of debt is 4.5 percent and the cost of equity is 9 percent. The management of O.K., Inc. is
Considering a small project that they consider to be equally as risky as the overall firm. The project
Has an initial cash outlay of $10,000. The project is expected to have a single cash inflow of $17,500
At the end of two years. What is the projected net present value of this project?

• A) $5,040.41
• B) $5,143.32
• C) $5,707.07
• D) $6,025.27
• E) $6,279.07

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Definitions:

Adequate Security

Measures or assurance provided to protect an interest, particularly in financial transactions, that are considered sufficient to mitigate risk.

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The precise wording or specific phrase used in legal documents, contracts, or contexts.

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