Which of the following statements regarding the calculation of NPV is correct?

	Externalities should never be considered in the capital budgeting process.
	Opportunity costs should not be considered in a capital budgeting process.
	Cash flows should be analyzed on an after-tax basis.

Which of the following is most likely a situation where capital rationing is required?

	The firm is currently experiencing losses.
	The firm has a limited amount of funds to invest.
	Selecting a particular project will result in other lucrative investment opportunities for the company in the future.

Susan is considering investing in a new business which requires an initial investment of $50,000. The business is expected to generate the following net cash flows:

Year 1: $20,000

Year 2: $30,000

Year 3: $35,000

Determine the projects NPV and IRR if Susans cost of capital is 12%.

	NPV	IRR
A	$19,271	28.79%
B	$16,685	28%
C	$16,685	28.79%

	Row A
	Row B
	Row C

A firm is considering investing in the following two mutually exclusive projects:

	NPV	IRR
Project 1	$5,000	20%
Project 2	$6,000	10%

The firm should invest in:

	Project 1 only.
	both Project 1 and Project 2.
	Project 2 only.