1. If inflation is acknowledged and the Federal Reserve exercises tightening monetary policy, what will happen to the firms WACC and the feasibility of investment projects?

A. WACC will increase; NPV will decrease; investment projects will be less feasible

B. WACC will increase; NPV will increase; investment projects will be more feasible

C. WACC will decrease; NPV will decrease; investment projects will be less feasible

D. WACC will decrease; NPV will increase; investment projects will be more feasible

2.

Using the firms WACC as the starting point to discount investment project cash flows, how should the WACC be adjusted for a project if the cash flows are more risky than reflected by the firms WACC?

A. Adjust WACC upward to a higher discount rate

B. Adjust WACC downward to a lower discount rate

3.

Because of the uncertainty in the economy and the uncertainty of the actions of the Federal Reserve, you are considering stress testing your project cash flows by using a risk analysis tool. You would like to assess the probability of achieving a positive NPV by running thousands of scenarios under various drivers. What type of risk analysis is this?

A. Sensitivity analysis

B. Scenario analysis

C. Situational analysis

D. Simulation analysis