What is the major pitfall of the NPV decision rule?

a. it is biased toward accepting risky projects

b. it adopts unreasonable reinvestment rate assumptions

c. it does not factor in the scale of the projects

d. it fails to allow for interest rate shifts

e. it does not work well in capital rationing situations

7. If you were to pay $1,000 for an art appreciation course that is expected to give you $200 per year in enjoyable benefits for 30 years and your opportunity cost of capital is 10 percent, what is the NPV of the art appreciation class?

a. -$382

b. $618

c. $885

d. $1,000

e. $1,885

8. For competing projects, the selection process should be based on:

a. the highest IRR

b. the largest NPV

c. the longest life span

d. the smallest investment

e. the largest investment

9. If a project has an IRR of 10 percent, then its NPV will be:

a. positive at a discount rate of 5 percent

b. negative at a discount rate of 15 percent

c. both of A and B

d. neither A or B

e. impossible to determine

11. Which of the following should be included in the calculation of cash flow for project evaluation?

a. The price paid for the land when it was purchased 5 years ago

b. The cost of the test market

c. the interest on the debt used to finance the project

d. the investment in inventory that will be recovered at the end of the life of the project

e. a proportion of the electricity costs