True or false questions [4 points per question]

(5-6) You have been offered a unique investment opportunity. If you invest $20,000 today, you will receive $1000 one year from now, $2000 two years from now, and $20,000 five years from now.

5. I should not take this investment opportunity if the interest rate is 10%.

6. I should take this investment opportunity if the interest rate is 5%.

7. If an investor is risk-neutral, his risk premium for any given asset is zero.

8. If two assets have the same cash flow and they are priced the same, then there is no arbitrage opportunity.

9. Sunk costs should be considered when we evaluate a new project.

10. When we introduce a new product, the sales of the old product might be affected. This is an example of side effect.

11. When we conduct a scenario analysis, we change only one parameter. While in sensitivity analysis, we change the value of several parameters together and look for the corresponding NPV.

12. In a perfect capital market, leverage decreases the risk of equity

13. In a perfect capital market, the cost of unlevered equity is the weighted average of levered equity cost and cost of debt.

14. In the trade-off theory, a firm would like to employ as much debt as possible.