1. As a lender you have the option to give out two loans. Loan 1: $300,000 with administrative costs of $3,000. Loan 2: $900,000 with administrative costs of $6,000. Which loan is more profitable for the lender and why?
2. Which of the following will increase the net present value of a project?
a. An increase in the initial investment. b. A decrease in annual cash inflows. c. An increase in the discount rate. d. A decrease in the discount rate.
3. A company’s discount rate is based on the
a. cost of capital and the internal rate of return.
b. cost of capital and the risk element.
c. cut-off rate and the risk element.
d. cut-off rate and the internal rate of return.