Problem 1: The value of cash flow will decline if ____________________:
i.) the discount rate rises
ii.) the cash flow occurs closer in time
iii.) compounding frequency rises
iv.) its level of risk rises
a) i. and ii. Only
b) i. and iii. Only
c) ii and iii only
d) iii and iv only
e) I, iii and iv only
Problem 2: Suppose a project will increase the investment inventory by 10,000, decrease accounts payable by 5000 and decrease prepaid assets by 2500 as soon as the project starts. The form used a 12% as the discount rate.. Further, it is assumed that the investment in working capital is recovered after three years at the end of the project. What is the impact of working capitol in computing the NPV?
a) cash flow decreases by 12,500
b) cash flow increased by 12,500
c) cash flow decreased by 1727
d) cash flow increased by 1339
e) cash flow decreased by 1339