1. An investment today of $21,000 promises to return $10,000 annually for the next 3 years. What is the real rate of return on this investment if inflation averages 6% annually during the period?
A. 21.20%
B. 16.19%
C. 13.00%
D. 12.09%
2. You are evaluating a new project that will introduce a revolutionary new product that will be produced by a new, highly efficient machine. Which one of these will lower the net present value of that project?
A. A reduction in the firm's total variable costs due to the purchase of the new machine
B. A loss of current sales due to the introduction of the new product
C. The increase in annual depreciation resulting from the asset purchase
D. The sale of the machine after it is fully depreciated