QUESTION 1 A security firm is offered $80,000 in one year for providing CCTV coverage of a property. The cost of providing this coverage to the security firm is $74,000, payable now, and the interest rate is 6.5%. Should the firm take the contract? Yes, since net present value (NPV) is positive. It does not matter whether the contract is taken or not, since NPV = 0. Yes, since net present value (NPV) is negative. No, since net present value (NPV) is negative. QUESTION 2 A convenience store owner is contemplating putting a large neon sign over his store. It would cost $50,000, but is expected to bring an additional $14,000 of profit to the store every year for five years. Would this project be worthwhile if evaluated using a payback period of two years or less and if the cost of capital is 14%? Yes, since the overall NPV is positive Yes, since the value of the cash flows into the store, in present dollars, are greater than the initial investment Yes, since the cash flows after two years are greater than the initial investment. No, since the value of the cash flows over the first two years are less than the initial investment