1. Which of the following is not correct?

A) Payback period is the amount of time required for an investment to generate cash flows that recover its net present value.

B) Based on the IRR rule, an investment is acceptable if the IRR exceeds the required return. It should be rejected otherwise.

C) Net present value profile is a graphical representation of the relationship between an investments NPVs and various discount rates.

D) Present value index is the present value of an investments future cash flows divided by its initial cost.

2. Kathys rich uncle promises her an allowance of $10,000 per month for 6 months, with the first allowance to be made 1 month from today. If the interest rate is 0.5% per month, what is the present value of the promised allowance?

A) The present value of investment is $58,963.84.

B) The present value of investment is $49,258.66.

C) The present value of investment is $4,785.69.

D) The present value of investment is $60,000.

3. Which of the following statement is not true?

Partnerships are not separate legal entities and the partners are therefore personally liable for obligations (including debts) entered into by the partnership.

B) Public companies may be listed on a stock exchange, which facilitates trading in the companys shares.

C) The shareholders of most companies have limited liability.

D) Based on the IRR rule, an investment is acceptable if the IRR exceeds zero. It should be rejected otherwise.

4. You wish to get a Surface when you enter your first university degree in 2 years. You have about $2,000 today in your saving account but the Surface costs $4,500. Assume the price stays the same. If you can earn 2.5% per annum, how much do you have to invest (today) to get the Surface in 2 years? If your parents are happy to subsidize $500 (today), how much do you need to invest today?

A) You need to deposit $2,500 into your saving account today but only $2,000 with subsidy from parents.

B) You need to deposit $2,398.75 into your saving account today but only $1,898.75 with subsidy from parents.

C) You need to deposit $2,400 into your saving account today but only $1,500 with subsidy from parents.

D) You need to deposit $2,283.17 into your saving account today but only $1,783.16 with subsidy from parents.

5. The size, timing and risk of the cash flow from a potential investment are of equal importance and each must be taken into account when the investment us being evaluated.

True or

False