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Corporate Finance · Quiz 2 · 23 Nov 2025 · September 2025 term

Question 17: What would be the appropriate promised rate of return th…

Question 17

+4 marksOne correct option

A new vineyard is purchased for 700 thousand units. There is a 10% chance of a severe pest infestation in the next year. If there is an infestation, the total payoff of the vineyard will be 300 thousand units in the next year. Otherwise, the vineyard generates a payoff of 900 thousand units in the next year. The appropriate cost of capital is 15% per year. The purchase is financed with a loan of 500 thousand units and the remaining amount as equity.
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

    33.33%

  2. B

    21.11%

  3. C

    30.88%

  4. D

    25.00%

Show answer

Correct answer

  • B

    21.11%

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Question 17 of 25 in the IIT Madras BS Corporate Finance (Corporate Finance) Quiz 2 paper sat on 23 Nov 2025, in the September 2025 term (IIT M DEGREE AN EXAM QDB2 23 Nov 2025 NEW). It carries 4 marks.

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