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Question 1 Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? A project's NPV increases as the WACC declines. A project's discounted payback increases as the WACC declines. A project's MIRR is unaffected by changes in the WACC. A project's IRR increases as the WACC declines. A project's regular payback increases as the WACC declines. 0.625 points Question 2 Firms that make investment decisions based upon the payback rule may be biased towards rejecting projects: with early cash inflows. With short lives. With long lives. Those with negative NPVs. None of above. 0.625 points Question 3 When a project's internal rate of return equals its opportunity cost of capital, then: The net present value will be negative. The net present value is a linear combination of MIRR and IRR. The net present value will be positive. The project has no cash inflows. The net present value will be zero. 0.625 points Question 4 When hard rationing exists, projects may be evaluated by the use of ? Payback period. borrowing rather than lending projects. Modified payback period. A profitability index. MIRR. 0.625 points Question 5 Your old car costs $3000 annually in maintenance expense. You could replace it with a newer vehicle costing $6000. Both vehicles would be expected to last 4 more years. If your opportunity cost is 10% what should be the maximum annual maintenance expense be on the newer vehicle to justify the purchase? (Hint: EAC on the new vehicle should not exceed $3000) $1250.34 $1107.18 $1893.88 $3000.00 $1415.51 0.625 points Question 6 For a project that has the following cash flow and WACC data, what is the project's NPV? WACC 8.50% 0 1 2 3 -$1,000 $500 $500 $500 Year Cash flows $337.95 $277.01 $324.10 $335.18 $243.77 0.625 points Question 7 For a project that has the following cash flow data, what is the project's IRR? 0 1 2 3 4 -$825 $400 $400 $400 $400 Year Cash flows 35.95% 32.98% 39.91% 24.74% 28.69% 0.625 points Question 8 George Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC 10.00% 0 1 2 3 -$625 $500 $500 $500 Year Cash flows 1.30 years 1.41 years 1.58 years 1.09 years 1.07 years