QUESTION 1 Which of the following statements is true: When computing the present value of an investment, the rate used to discount future cash flows is the investor's borrowing rate. Because the cost of debt is always more than the cost of equity, most companies try to apply financial leverage as much as possible. If the present value of an asset is less than its cost, net present value is positive and the investment is deemed favorable. Most financial managers use the internal rate of return method to analyze multiple investment opportunities. QUESTION 2 Which of the following statements is false? The mix of debt and equity, the cost of each, and the income tax rate of the business drive the WACC. As the discount rate increases, the present value of the investment increases. The payback period is the amount of time a project requires to pay back the initial equity investment. The payback method considers the concept of cash ows in its calculations. QUESTION 3 Which of the following statements is false? The higher the risk, the more lenders and investors want to be compensated for their capital, and the lower the cost of capital. The discount rate includes the cost of interest expense and the investor's required ROI. The payback calculation divides the initial cost of the investment by incremental annual cash flow. The NPV method is superior to the payback method in that it takes into account all cash flows