1. Which of the following factors should be included in the cash flows used to estimate a project's NPV?
The end-of-project recovery of any working capital required to operate the project.
All costs associated with the project that have been incurred prior to the time the analysis is being conducted.
Interest on funds borrowed to help finance the project.
Cannibalization effects, but only if those effects increase the project's projected cash flows.
2. Which of the following statements is CORRECT?
Simulation analysis is a computerized version of scenario analysis where input variables are selected randomly on the basis of their probability distributions.
Well-diversified stockholders do not need to consider market risk when determining required rates of return.
Sensitivity analysis is a good way to measure market risk because it explicity takes into account diversification effects.
One advantage of sensitivity analysis relative to scenario analysis is that it explicitly takes into account the probability of specific effects occurring, whereas scenario analysis cannot account for probabilities.
3. True or False: Financial leverage affects earnings after interest and taxes, or the earnings available to common stockholders.