The following information apply to the next four questions.

Discounted cash flow (DCF) valuation is based on the notion that the value of an asset is the present value of the expected cash flows on that asset, discounted at a rate that reflects the riskiness of those cash flows. Specify whether the following statements about DCF valuation are true or false, assuming that all variables are constant except for the on mentioned:

As the discount rate increases, the value of an asset increases.

1. True
2. False

As the expected growth rate in cash flows increases, the value of an asset increases.

1. True
2. False

Q7. As the life of an asset is lengthened, the value of the asset increases.

1. True
2. False

Q8. As the uncertainty about the expected cash flow increases, the value of an asset increases.

1. True
2. False

Assume a project has normal cash flows (i.e., initial cash flow is negative, and all other cash flows are positive). Which of the following statements is most correct?

a. All else equal, a project's IRR increases as the required rate of return declines.

b. All else equal, a project's NPV increases as the required rate of return declines.

c. All else equal, a project's IRR is unaffected by changes in the required rate of return.

d. Answers a and b are both correct.

e. Answers b and c are both correct.

A $10,000 loan is to be amortized over 5 years, with annual end-of-year payments. Given the following facts, which of these statements is correct?

a. The annual payments would be larger if the interest rate were lower.

b. If the loan were amortized over 10 years rather than 5 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 5-year amortization plan.

c. The last payment would have a higher proportion of interest than the first

payment.

d. The proportion of interest versus principal repayment would be the same for each of the 5 payments.

e. The proportion of each payment that represents interest as opposed to

repayment of principal would be higher if the interest rate were higher.