Question 1

The NPV rule says:

1.Invest in all projects for which NPV > 0.

2.Invest in all projects for which NPV < 0.

  1. Do not invest in projects with unknown NPV.

 

Question 2

A firm accepts a project costing $27,000 with a present value of cash flows of $30,000 and an NPV of $3,000. Acceptance of this project should increase the firm’s value by

1.$3,000

  1. $27,000
  2. $30,000

 

Question 3

Which of the following is true?

1.A risk-adjusted discount rate is higher than the risk-free rate.

2.The risk premium is the sum of the risk-adjusted and risk-free rates.

3.The risk premium is the average of the risk-adjusted and risk-free rates.

4.A risk-adjusted discount rate is lower than the risk-free rate.

 

Question 4

Consider a project with an initial investment of $1,000, followed by five years of positive cash flows. Which of the following is true?

1.The project’s NPV is the present value of future cash flows, minus $1,000.

2.The project’s NPV is the present value of future cash flows, plus $1,000.

  1. The project’s NPV is the present value of only the future cash flows.

 

Corporate FInancial Management (Capital Budgeting)