1. In theory, the risk-free rate is more appropriate for the NPV calculation in the certainty equivalent approach since:

	a.	certainty equivalents consider unsystematic risk only.
	b.	it is assumed that there is no business-specific risk associated with the projects.
	c.	certainty equivalents imply zero risk.
	d.	certainty equivalent factors cannot take negative values.

2. The certainty equivalent factor can take any value:

	a.	between -1 and 1.
	b.	between -100 and 0.
	c.	between 0 and 1.
	d.	between 0 and 100.

3. Riskier projects should be harder to accept than others with similar cash flows. This is accomplished by:

	a.	Using higher discount rates which will lower the NPV of the project.
	b.	Using lower discount rates which will lower the NPV of the project.
	c.	Using higher discount rates which will increase the NPV of the project.
	d.	Using lower discount rates which will increase the NPV of the project.

4. Average stocks are yielding 7.0%, while short term treasuries return 3.0%. Marshall Inc. has a beta of 1.3 and is considering a new venture into an industry with direct competitors who have betas that average 1.8. What discount rate should Marshall use in evaluating the cash flows from this project?

	a.	10.0%
	b.	10.2%
	c.	8.2%
	d.	4.8%