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2. Which of the following should be assumed about a project that requires a £100,000 investment at time-period zero, then returns £20,000 annually for 5 years?

  • The NPV is negative
  • The IRR is negative
  • The NPV is zero
  • The profitability index is 1.0

3. A firm’s WACC:

  • Is a benchmark discount rate that is adjusted for the riskiness of each project
  • Is an informational value only and should never be used as a discount rate
  • Is used to value all of the firm's existing projects
  • Is the proper discount rate for every project the firm undertakes

4. What level of management is responsible for originating capital budgeting proposals?

  • Lower management
  • Senior management
  • All levels of management
  • Divisional management

5. Firms that make investment decisions based on the payback rule may be biased toward rejecting projects:

  • With long lives
  • That have negative NPVs
  • With short lives
  • With late cash inflows
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