q1) An investment analyst needs to make a decision on two independent projects with a useful life of 5 years each. The capital investment budget is $25 million.

Project A: Initial investment of $10 million and annual cash flows of $3 million on years 1 to 5.

Project B: Initial investment of $12 million and annual cash flows of 3.5 million on years 1 to 5.

If the discount rate is 10%, what would be the best decision?

a. choosing both projects

b. choosing neither project

c. choosing project A

d. choosing project B

q2) Which of the following statements is not true?

a. Additions to net working capital decrease the cash flow of the firm

b. Retirement of long term bonds increases the cash flow to bondholders.

c. Depreciation increases the cash flow of the firm.

d. Repurchase of own company share increases the cash flow to shareholders.

e. All of THESE are true

q3) Which of the following statements is not true?

a. A bond selling at 102.5% of par value is equal to $1,025.

b. All of THESE are true

c. The bid price is the price you can buy a bond.

d. The par value of a bond is the face value and is equal to $1,000.