**Question 1 **

The NPV rule says:

1.Invest in all projects for which NPV > 0.

2.Invest in all projects for which NPV < 0.

- Do not invest in projects with unknown NPV.

**Question 2 **

A firm accepts a project costing $27,000 with a present value of cash flows of $30,000 and an NPV of $3,000. Acceptance of this project should increase the firm’s value by

1.$3,000

- $27,000
- $30,000

**Question 3 **

Which of the following is true?

1.A risk-adjusted discount rate is higher than the risk-free rate.

2.The risk premium is the sum of the risk-adjusted and risk-free rates.

3.The risk premium is the average of the risk-adjusted and risk-free rates.

4.A risk-adjusted discount rate is lower than the risk-free rate.

**Question 4 **

Consider a project with an initial investment of $1,000, followed by five years of positive cash flows. Which of the following is true?

1.The project’s NPV is the present value of future cash flows, minus $1,000.

2.The project’s NPV is the present value of future cash flows, plus $1,000.

- The project’s NPV is the present value of only the future cash flows.

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