1) Calculate the NPV assuming the following cash flows for the first three years and 10%

WACC:

Year 0 (investment)= -$30 MM, Year 1= $20 MM, Year 2= $30 MM, Year 3= $40 MM

A) $43.03 MM
B) $28.34 MM
C) $46.13 MM
D) $50.21 MM

2) Calculate IRR for the same info provided in Q1:

Year 0 (investment)= -$30 MM, Year 1= $20 MM, Year 2= $30 MM, Year 3= $40 MM

A) 79.26%
B) 70.86%
C) 50.12%
D) 40.23%

3) The other names for discount rate used in the NPV equation are:
A) Cost of capital.
B) Hurdle rate
C) Weighted average cost of capital (WACC)
D) All the above

4) Which model is used to calculate cost of equity?

A) WACC
B) CAPM
C) CNAP
D) None of the above

5) In the capital asset pricing model, what is the term rf:

A) Average market return
B) Risk free rate
C) Interest rate
D) None of the above

6) NPV method assumes that positive cash flows are reinvested at the cost of capital while IRR
method unrealistically assumes that positive cash flows are reinvested at IRR.
A) True
B) False
 7) One of the disadvantages of payback method is that it ignores the time value of money. In
addition, it ignores the cash flows occurring after the payback period.
A) True
B) False

8) To accept a project using IRR, the following condition must exist:

A) WACC>IRR
B) IRR>WACC
C) IRR>NPV
D) None of the above

9) There are a few main components in WACC, and they are as follows:
A) Weight of debt and equity
B) Cost of debt and equity
C) Corporate tax rate
D) All the above

10) Inflation is:

A) Reduction in purchasing power over time
B) People are impatient about money
C) Non-existent
D) None of the above

Answers:

1) A
2) B
3) D
4) B
5) B
6) A
7) A
8) B
9) D
10) A