1. The present value of a perpetual tax shield increases as the firm’s tax rate _____ and the amount of principal _____
a. Increases; increases
b. Increases; decreases
c. Decreases; decreases
d. Decreases; increases
2. Net working capital is expected to increase by $25,000 over the 5-year life of a project. What is the effect of net working capital on the project’s net present value if the cost of capital is 15%?
a. NPV will not be affected because the $25,000 will all be recouped.
b. NPV will increase by $12,429.42.
c. NPV will decrease by $25,000.
d. NPV will decrease by $12,570.58.