1. Although NPV is the best capital budgeting technique, most executives prefer to use:
a. payback because the calculations are easy.
b. IRR because people are more comfortable with rates of return than with the somewhat abstract notion of a present valued dollar.
c. NPV adjusted for inflation because it overcomes the difficulties they have with the method.
d. profitability index because they are familiar with ratios.
2. Which of the following statements is most correct?
a. Business-specific risk cannot be eliminated by diversification.
b. Investors are not compensated for bearing business specific risk.
c. Risk that cannot be diversified away is the risk peculiar to the stock under consideration.
d. You cannot ignore the business-specific risk even if you hold a very large portfolio.
e. All of the above statements are correct.