Q1

Suppose you have three indivisible assets, A, B and C with internal rates of return 2%, 5% and 10% respectively and initial costs of $1, $4, $5.

Suppose you have $6 at 1% and can borrow at 8%. What is the incremental cost of funds on asset C?

Question options:

• 6%
• 10%
• 1%

Q2)

Suppose you have the following indivisible assets:
• A with initial cost of $2, IRR of 20% and present worth at 10% of $2
• B with initial cost of $3, IRR of 15% and present worth at 10% of $3
• C with initial cost of $5, IRR of 14% and present worth at 10% of $6
• D with initial cost of $6, IRR of 11% and present worth at 10% of $2

Which assets do you buy if you have a $6 capital budget?

Question options:

• C
• A only
• D

Q3) Suppose you have three indivisible assets, A, B and C with internal rates of return 2%, 5% and 10% respectively and initial costs of $1, $4, $5. Suppose you have $6.5 at 1% and can borrow at 8%. What is the incremental cost of funds on asset B?