For each of the following multiple choice questions, cirde the best answer. 1. A company is considering a new project The CFO plans to calculate the project's NPV by estimating the relevant cash flows for each year of the project's life (the initial investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the company's WACC. Which one of the following factors should the CFO indude in the cash flows when estimating the relevant cash flows? a all interest expenses on debt used to help finance the project b. the investment in working capital required to operate the project, even if that investment will be recovered at the end of the project's life C. sunk costs that have been incurred relating to the project, but only if those costs were incurred prior to the current year d effects of the project on other divisions of the fim, but only if those effects lower the direct cash flows of the project 2. You own a bond that has a 7 percent coupon and matures in 12 years. You purchased this bond at par value when it was originally issued. If the current market rate for this type and quality of bond is 7.5 percent, then you would expect: O O O O the bond issuer to increase the amount of each interest payment on these bonds. the yield to maturity to remain constant due to the fixed coupon rate. to realize a capital loss if you sold the bond at the market price today. today's market price to exceed the face value of the bond. the current yield today to be less than 7 percent. 3. Aubey Aircraft recently announced that its net income increased sharply from the previous year, yet its net cash flow from operations declined. Which of the following could explain this performance? a. The company's operating income dedined. b. The company's expenditures on fixed assets declined C. The company's cost of goods sold increased d The company's depreciation and amortization expenses declined 4. If the inflation rate in Canada is greater than the inflation rate in Britain, other things hel constant, what will happen to the British pound? a. It will appreciate against the Canadian dollar. b. It will depreciate against the Canadian dollar. C. It will remain unchanged against the Canadian dollar. d. It will appreciate against other major currencies. 5. You plan to invest some money in a bank account. Which of the following banks provides you with the highest effective rate of interest? a. Bank 1, 6.0% with monthly compounding b. Bank 2, 6.0% with annual compounding C. Bank 3, 6.0% with quarterly compounding d Bank 4, 6.0% with daily (365-day) compounding