1. Chronic Pain Clinic has estimated the following cash flows associated with a new project. The project cost of capital (discount rate) is 10 percent.

A. Year 0: ($800,000)

B. Year 1: $400,000

C. Year 2: $400,000

D. Year 3: $400,000

2. What is the projects internal rate of return?

A. 23.4 percent

B. 19.9 percent

C. 20.4 percent

D. 18.5 percent

E. 21.8 percent

3. Which of the following statements about project risk analysis techniques is most correct?

A. Scenario analysis considers the joint (combined) impact of changes in uncertain input variables on rofitability.

B. When standard deviation of net present value is used to measure risk, the smaller the value, the greater the risk.

C. Scenario analysis, as it is done in practice, usually involves four scenarios.

D. In a sensitivity analysis graph, the steeper the plot lines, the lower the risk.

E. Sensitivity analysis considers the joint (combined) impact of changes in uncertain input variables on profitability.

4. A medical group practice is considering offering a new service with risk that is greater than the current risk of the business. In evaluating this investment, the decision maker should

A. increase the net present value of the project to reflect the greater risk.

B. ignore the risk differential if the project represents only a small fraction of the total assets of the business.

C. reject the project, because its acceptance would increase the risk of the business.

D. increase the cost of capital applied to the project to make it greater than the businesss corporate cost of capital.

E. increase the internal rate of return of the project to reflect the greater risk.