Question 1:

The internal rate of return is:

• the discount rate that makes the NPV negative.

• the discount rate that makes the NPV equal zero

• the discount rate that makes the present value of the cash flows equal to the present value of the cash outflows.

• Both A and B.

Question 2:

depreciation expenses affect tax-related cash flows by:

• decreasing taxable income, thus reducing taxes.

• decreasing taxable income, thus increasing taxes.

• increasing taxable income, thus increasing taxes

• decreasing taxable income with no effect on cash flow, since depreciation is a non-cash expense

Question 3

when selecting the best project from a group of mutually exclusive projects, you should choose the project with the highest:

• internal rate of return

• after-tax earnings

• net present value

• payback period

Question 4

Cost of capital is:

• all the above
• the rate use to discount of a project's future cash flows in order to determine the NPV .
• the rate of return that must earned on additional investment in order for the firm to meet it's required return.
• a weighted average cost of capital that a company is expected to pay on average to all its security holders to finance its assets.