The NPV rule says:
1.Invest in all projects for which NPV > 0.
2.Invest in all projects for which NPV < 0.
- Do not invest in projects with unknown NPV.
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
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.
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.
- The project’s NPV is the present value of only the future cash flows.