1) Since a firm's borrowing costs are always less than the cost of raising capital by issuing new shares of stock (because of the priority of claims and the risk/return tradeoff), the firm should always borrow as much as possible in order to minimize their overall cost of raising money (their WACC=weighted average cost of capital
True
False
2) A firm is considering a capital investment project that will require an immediate investment of $1,000. The project is expected to generate the following cash inflows: Year 1: $300; Year 2: 400; Year 3: $500. Assuming the firm's risk-adjusted required rate of return for this project is 5%. What is the NPV (net present value) of this project, rounded to the nearest whole dollar?
$80
$200
$152
$76
3) Which of the following methods for evaluating capital investment projects does not consider all expected future cash inflows?
1. NPV; 2. IRR; 3. PB (payback) 4. dPB (discounted payback)
3 and 4 only
1 and 2 only
1 only
3 only
2 and 3 only