1. A profitability index of 1.45 implies that for every $1 of investment, we create an additional $1.45 in value.

Select one:

True

False

2.Cooper and Truman, Inc., is looking at setting up a new manufacturing plant in Twin Peaks, WA to produce garden tools. The company bought some land six years ago for $3.2 million in anticipation of using it as a warehouse and distribution site, but the company has since decided to rent these facilities from a competitor instead. If the land were sold today, the company would net $2.7 million. The company wants to build its new manufacturing plant on this land; the plant will cost $13.8 million to build, and the site requires $675,000 worth of grading before it is suitable for construction. What is the proper cash flow amount to use as the initial investment in fixed assets when evaluating this project?

Select one:

A. 13,800,000

B. 16,500,000

C. 17,175,000

D. 20,375,000

E. 24,000,000

3. What is the decision rule for IRR?

Select one:

A. accept a project when IRR > 0

B. accept a project when IRR > NPV

C. accept a project when IRR > 100%, indicating that the project has more than recaptured its initial cost

D. accept a project if the IRR exceed the risk-free rate of return, rf

E. accept a project if the IRR exceeds the firms cost of capital or WACC.