1. The use of WACC based on a firms own stock price to select new projects or investments is acceptable when the:

A) Projects are completely different from existing businesses

B) NPV is positive when discounted by the WACC

C) Risk of the projects is similar to the risk of the firms existing activities

D) WACC should always be used as a discount rate in evaluating new projects.

2. In reviewing a proposed projects cash flows (where you first invest then earn profits), if you learned that the (systematic) risk of the project had declined from your previous expectations, your revised net present value:

A) Should increase

B) Should decrease

C) Should not change

D) Should increase or decrease depending on the number of years of cash flows

3. Which of the following is (are) a rule to follow in estimating cash flows?

A) Include sunk costs

B) Do not include opportunity costs

C) Use after-tax cash flows

D) all of A, B, and C are major steps