1. A clinics management has estimated the net present value (NPV) for a proposed project at $15,000. All else held constant, which of the following would increase the projects estimated NPV?

A. An increase in the projects risk

B. An increase in the corporate cost of capital

C. An increase in the initial investment cost

D. None of the above answers is correct

E. A two-year delay in the receipt of the projects initial net operating cash flows (assuming the expected cash flows are positive)

2. What type of risk is most relevant for projects being evaluated by investor-owned businesses?

A. Answers (a), (b), and (c) are correct

B. Market risk

C. Corporate risk

D. Stand-alone risk

E. Answers (a) and (c) are correct

3. Return on investment (ROI) can be measured on either a dollar basis or a rate of return basis. Which of the following statements about ROI is false?

A. Internal rate of return (IRR) is a rate of (percentage) return measure.

B. The calculation of NPV requires the project cost of capital (discount rate).

C. ROI measures use time-value-of-money concepts.

D. The calculation of IRR requires the project cost of capital (discount rate).

E. Net present value (NPV) is a dollar return measure.

4. Strengths of scenario analysis as compared to sensitivity analysis include which of the following?

A. Answers (a), (b), and (c) are correct.

B. Scenario analysis provides all necessary information about both a projects risk and its profitability in a single step.

C. Scenario analysis considers the sensitivity of net present value to changes in key variables, the likely range of variable values, and the interactions among variables.

D. Scenario analysis allows for the calculation of a projects coefficient of variation so that the riskiness of projects can be compared to the firms average project.

E. Answers (a) and (b) are correct.

5. Which of the following statements about capital rationing is most correct?

A. Capital rationing occurs when a business does not have the capital necessary to fund all acceptable projects.

B. Answers (a), (b), and (c) are correct.

C. Under capital rationing, the typical approach is to accept all projects with negative net present values.

D. Capital rationing occurs when a business has more capital available than needed to fund all acceptable projects.

E. Answers (a) and (b) are correct.