1. Suppose you calculate a Project’s profitability index to be 1.4, what does it mean?

A) For every $1 investment there is an increase of $1 and $0.40

B) For every $1 investment there is an increase of $0.40

C) For every $1 investment there is an increase of $0.60

D) For every $1 investment there is an increase of $2.80

2. An investment’s discount rate that makes the present value of all expected future cash flows equal to zero in the discounted payback period.

A) True

B) False

3. The cost of capital may be an explicit cost (for example, the interest paid on debt) an or, an implicit cost (for example, the expected price appreciation of shares of the firm’s common stock)

a) True

b) False