1. Net present value is based on many estimates and forecasts. What can be done to compensate for the uncertainty of these future variables?
A. Decreasing the discount rate B. Nothing C. Using IRR instead D. Sensitivity and scenario analysis
2. Compounding with Different Interest Rates A deposit of $780 earns interest rates of 10.8 percent in the first year and 7.8 percent in the second year. What would be the second year future value?
3. A stock sells for $20. The next dividend will be $4 per share. If the rate of return earned on reinvested funds is a constant 15% and the company reinvests 40% of earnings in the firm, what must be the discount rate? (Enter your answer as a whole percent.)