1.

A firm is considering several mutually exclusive investment opportunities. The best way to choose between them is which of the following?

a.

net present value (NPV)

b.

profitability index

c.

internal rate of return (IRR)

d.

payback period

2. The owners of a chain of fast-food restaurants spend $28 million installing donut makers in all their restaurants. This is expected to increase cash flows by $10 million per year for the next five years. If the discount rate is 6.5%, were the owners correct in making the decision to install donut makers?

a.

Yes, as it has a net present value (NPV) of $8.74 million.

b.

No, as it has a net present value (NPV) of -$2.25 million.

c.

Yes, as it has a net present value (NPV) of $8.74 million.

d.

No, as it has a net present value (NPV) of-1.68 million.

3. A farmer sows a certain crop. It costs $250,000 to buy the seed, prepare the ground, and sow the crop. In one year's time it will cost $110,000 to harvest the crop. If the crop will be worth $380,000, and the interest rate is 8%, what is the net present value (NPV) of this investment?

	a.	$23,100
	b.	$0
	c.	-$220
	d.	-$21,000