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Corporate Finance · Quiz 2 · 12 Apr 2026 · January 2026 term

Question 21: What would be the appropriate promised rate of return th…

Question 21

+4 marksOne correct option

A pharmaceutical company start a new project to discover a drug. The project costs 500 thousand units, which is financed with a 400 thousand-unit loan and the remaining amount in equity. There is a 70% chance of a successful discovery, and in this case, the project generates a payoff of 900 thousand units in the next year. In the event of failure (30% chance), only 100 thousand units are recovered. The appropriate cost of capital is 10% per year.
Based on the above data, answer the given subquestions.

What would be the appropriate promised rate of return that the creditor of the loan would demand?

  1. A

    28.33%

  2. B

    35.27%

  3. C

    46.43%

  4. D

    58.57%

Show answer

Correct answer

  • C

    46.43%

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Question 21 of 25 in the IIT Madras BS Corporate Finance (Corporate Finance) Quiz 2 paper sat on 12 Apr 2026, in the January 2026 term (Corporate Finance 07 Apr 26). It carries 4 marks.

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