1. Cash Flows in capital budgeting are most likely to include:

A. interest cost on debt issued to finance the capital project

B. flotation costs associated with equity issued to finance the capital project

C. previous expenditures associated with a market study to determine the feasibility of the project

2. May is studying the relationship between NPV and IRR. If an investment is profitable and follows a conventional cash flow pattern, what will happen to the IRR if all the cash flows of the investment ie initial investment outlay and all future after-tax cash flows doubled?

A. IRR would increase and the NPV would increase

B. IRR would stay the same and the NPV would increase

C. IRR would increase and the NPV would stay the same