Multiple choice

1. If the present value of a cash flow generated by an initial investment of $200,000 is $250,000, what is the NPV of the project?  

a. $250,000 

b. $50,000 

c. $200,000 

d. None of the above 

2. Which of the following statements about risk are (is) true:  

a. A safe dollar is worth the same as a risky one 

b. A safe dollar is worth less than a risky one 

c. A safe dollar is worth more than a risky one 

d. None of the above statements are true 

3. The following statements regarding the NPV rule and the rate of return rule are true except:  

a. Accept a project if its NPV > 0 

b. Reject a project if the NPV < 0 

c. Accept a project if its rate of return > 0 

d. Accept a project if its rate of return > opportunity cost of capital 

4. An initial investment of $500 produces a cash flow $550 one year from today. Calculate the rate of return on the project  

a. 10% 

b. 15% 

c. 25% 

d. None of the above