 # Question & Answer: Alternative 2. The present worth of Alt. 2 is higher than the present worth of Alt. 1 and there is l…..  Alternative 2. The present worth of Alt. 2 is higher than the present worth of Alt. 1 and there is less variability in the present worth for Alt. 2 Alternative 1. The present worth of Alt. 1 is higher than the present worth of Alt. 2 Alternative 2. The probability of the present worth being greater than zero for Alt. 2 is greater and there is less variability in the present worth for Alt. 2 b. c. d. Problem 7 (Chapter 13 In 2011, a firm has receipts of \$9 million and expenses (excluding depreciation) of \$5 million. Its depreciation for 2011 amounts to \$2 million. If the effective income tax rate is 40%, what is this firm’s net operating income after taxes (NOPAT)? Question 13) NOPAT is (Round to one decimal place.) Problem 8 (Chapter 13 The Caterpillar Company has a beta (a measure of common stock volatility) of 1.32. What is its estimated cost of equity capital based on the CAPM when the risk-free interest rate is 2.6%? Assume that the return on the market portfolio is 10.8%. Question 14) The cost of equity is %. (Round to two decimal places.) Problem 9 (Chapter 13) Refer to the associated graph. Identify when the WACC approach to project acceptability agrees with the CAPM approach. When do recommendations of the two approaches differ? 0.2 CAPM Required Rate of Retu u 」 WACC 0.0 0.0 2.0 3.0 Beta Question 15) Choose the correct answer below

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Problem 7:

NOPAT = EBIT×(1-Tax rate)

= (\$9-\$5-\$2)×(1-40%)

= \$2×60%

= \$1.20 million