1) Infosys Technologies just paid a dividend of $3.00 per share, and that dividend is expected to grow at a rate of 14% for at least the next few years. If we assume that this growth rate will continue forever (in perpetuity), then the Discounted Dividend Model (DDM) tells us that the value of this stock is negative at a discount rate of 9%.

True

False

2) Suppose were evaluating a project with an NPV of $20 million and an IRR of 14%. If we double all cash flows (both positive and negative), scaling everything up proportionally, then we will double the NPV but the IRR wont change at all, since IRR does not consider scale.

True

False

3) If NPV and IRR give you different recommendations, you should listen to IRR because it is better to get a high rate of return on each dollar invested.

True

False

4)

We have a project with the following cash flows:

0 1 2 3 4 5

Cash flows -25 160 120 -300 60 -110

Without doing any NPV/IRR calculations, what can you say about how many IRRs this project might have? Briefly but explicitly tell me what you know about the number of IRRs, simply from looking at the above cash flows. Be sure to give a complete answer.

A.

5

B.

Up to 3

C.

1

D.

At least 5

E.

Up to 5

F.

At least 3

G.

3

H.

At least 4

I.

We can't tell anything about the number of IRRs without calculating them.

J.

Up to 4

K.