How do changes in working capital affect project cash flows? 8. A) Increases in net working capital such as accounts receivable or inventory investments and therefore use cash. B) Increases in net working capital reduce the net cash flow provided by the project in that period. C) When working capital is D) All of the above are correct are run down, cash is freed up, so cash flow increases. 9. What is the NPV of a project that costs $100,000 and returns $50,000 annually for three years if the opportunity cost of capital is 14% ? A) $3,397.57 B) $4,473.44 C $16,085.00 D) $35,000.00 10. What is the maximum that should be invested in a project at time zero if the inflows are estimated at $50,000 annually for three years, and the cost of capital is 9%? A) $101,251.79 B) $109,200.00 C) $126,565.00 D) $130,800.00 11. If the plotting of a portfolio's returns against returns on the market index produces a tight pattern, then: A) the portfolio appears to be well diversified. B) the portfolio has a beta of less than 1.0 C) the portfolio has very little systematic risk. D) the portfolio has a very low market risk premium. Which mutually exclusive project would you select, if both are priced at $1,000 and your discount rate is 15 % ; Project A with three annual cash flows of $1,000, or Project B, with three years of zero cash flow followed by three years of $1,500 annually? 12. A) Project A. B) Project B. C) You are indifferent since the NPVS are equal. D) Neither project should be selected. 3