1) A project you are considering would use a plot of land. If you do not accept the project, you can rent the land for $100,000 per year. You should include this $100,000 as a cost when calculating the project's annual operating cash flow and NPV.

_____True

_____False

2) Net present value may be interpreted as the amount by which the market value of the firm will change if the project is accepted.

_____True

_____False

3) You are considering whether you should place a wind farm in Marcy NY. You have paid $50,000 for an analysis of the wind speed through the Mohawk Valley. The $50,000 is already paid, and so it is not contingent on whether you accept the project. You should include this $50,000 as a cost when calculating the project's NPV.

_____True

_____False

4) Treasury Bonds have no risk.

_____True

_____False

5) A company is consider a 3-year expansion project. It will require an investment of $5 million in fixed assets, which will be depreciated straight line to 0 over a three year life. The fixed assets are worth $0 at the end of three years. The project will generate $3 million in annual sales. Annual costs will be $2 million. The tax rate is 35%. What is the project's annual cash flow?

_________$1.22 million

_________$1.88 million

_________$2.51 million

_________$5.48 million