Use Next Year's Cash Flow Forecast for Blank Company to Answer

question 31

Multiple Choice

Use next year's Cash Flow Forecast for Blank Company to answer the following questions:

-Suppose Blank Company has only one project,as forecast above,and an unlevered cost of equity of 8%.If the company borrows $10,000 at 5% to make the investment,what is expected return to equity holders?

• A)8.0%
• B)11.6%
• C)9.33%
• D)30.0%

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Definitions:

Resource Allocation

The process of assigning and managing assets and resources in the most efficient way to meet organizational or economic objectives.

Present Value

The current value of a future sum of money or stream of cash flows given a specific rate of return.

Interest Rate

The percentage of a sum of money charged for its use, typically by a bank or financial institution on loans or savings.

Market Rate of Interest

The prevailing interest rate available in the marketplace on loans and deposits, determined by the demand and supply of credit.