1. Which of the following statements is TRUE?

A. Sunk costs increase a projects incremental cash flows

B. Whenever a new product reduces sales of the same companys existing products, erosion costs occur.

C. A synergy gain occurs when a firm uses an owned asset to support a new project

D. Increases in working capital accounts at the end of a project represent a recovery of earlier costs.

2. Alpha Corporation just paid a dividend of $2.50 per share on its common stock. Dividends are expected to grow at an annual rate of 8% for the next three years and then 3% thereafter. If you want to earn a minimum return of 9%, what is the most that you would be willing to pay for a share of Alpha Corporation today?

A. $49.12 B. $58.12 C. $45.00 D. $55.20

3. Stock A B C D

Expected Return 5% 3% 6% 6%

Standard Deviation 9% 7% 8% 9%

For a rational risk-adverse investor, which of the following statements is true?

A. B is preferred to C

B. D is preferred to C

C. C is preferred to D

D. A is preferred to B

4. Which of the following statements is TRUE?

A. STDEV.S is the correct Excel function to find the variance of a sample

B. Excels NPV function treats the cash flow of year one as the cash flow in year zero.

C. In Excel the IRR function is easier to use than the NPV function

D. The vertical intercept on the NPV Profile graph can be found by taking the product of all he projects undiscounted cash flows.