(Problems 1-5, 4 points each) 1 Which of the following is false? Interest expenses should be subtracted in the calculation of cash flows b. The salvage value is cash inflows at the end of the project. c. The net working capital increase in the beginning of the project is cash outflows d. The sunk cost should not be included in the calculation of cash flows. e. The net working capital decrease at the end of the project is cash inflows. NWC b 2. Edison Electric Systems is considering a project that has the following cash flow data. What is the project's IRR? Year: 0 1 2 3 Cash flows:-$1,000 450 $470 5490 a. 16.73% b. 17.44% c. 18.89% d. 19.05% e. 20.37% 3. ABC Corp.'s stock has an expected return of 10% and a standard deviation of 30%. What is the stock's coefficient of variation? a. 0.34 b. 2.2 c. 2.6(d.). e. 3.4 4. Rockmont Recreation Inc. is considering a project that has the following cash flow and WACC data. What is the project's NPV? (WACC = 10%) Year: 0 Cashflows $1,000 $450 $440 Saxo a. $88.84 b. $92.25/C. $95.79 d. $98.49 e. $102.63 5. Which of the following is false? The price in the market is determined by diversified investors. (b) The betas cannot be negative. c. In equilibrium, the required return is the same as the expected return. d. The IRR method assumes that cash flows are reinvested at the IRR. e. The risk premium would be negative if investors in general prefer risk. (Problems 6-17, 5 points each) 6. You have two stocks in your portfolio, A & B, investing $40,000 in stock A and S120.000 in stock B. Stock A's return is 15% and stock B's return is 30%. What is the return of your portfolio? 7. What is the profitability index (PI) of the following project? The company's cost of capital is 11%. Year 0 Project -S400 1 300 2 200 3 200