1. An investment analyst needs to make a decision on two independent projects with a useful life of 5 years each. The capital investment budget is $25 million.

Project A: Initial investment of $10 million and annual cash flows of $3 million on years 1 to 5.

Project B: Initial investment of $12 million and annual cash flows of 3.5 million on years 1 to 5.

If the discount rate is 10%, what would be the best decision?

Select one:

a. choosing neither project

b. choosing both projects

c. choosing project B

d. choosing project A'

2. Which of the following statements is not true?

Select one:

a. Repurchase of own company share increases the cash flow to shareholders.

b. Additions to net working capital decrease the cash flow of the firm

c. Depreciation increases the cash flow of the firm.

d. All of THESE are true

e. Retirement of long term bonds increases the cash flow to bondholders.

3. A corporation compensates shareholders by paying them interest for their contribution to the capital of the firm.

Select one:

True

False

4.A stock with a beta of 0.8 indicates that if the return on the market increases by 1%, then the return on the stock would increase by 0.8%.

Select one:

True

False