1. The discount rate in the net present value (NPV) calculation (choose all that apply)

a) should include the risk premium.

b) can be the risk free rate in the most simple cases.

c) is always the real interest rate after adjusted for inflation.

d) should equal the rate of return on other investment assets with similar risk.

2. Your firm is considering an expansion into Asia. If management is very uncertain about the forecasted cashflows, then the cost of capital for the project should be high to compensate for the high risks.

a) True

b) False

c) Not enough information to answer.

3. Your firm sells packaging materials. The business is very stable and investors have rewarded the firm with a low cost of capital, estimated at 8%. You are evaluating a new packaging project. You should require an 8% return on the project since this represents the cost of external financing for the firm.

a) True.

b) False.

c) Not enough information to answer