BUSI 530 UPDATED Exam Questions and CORRECT Answers

The opportunity cost of capital can best be described as:the expected rate of return given up by investing in a project rather than in the capital market The opportunity cost of capital is determined by the ______ of a project.risk What is the NPV of a project with an initial investment of $95, a cash flow in one year of $107, and a discount rate of 6%? (Be sure to record the initial investment as a negative number.)5.94 Reason: NPV = -$95 + ($107/1.06) = $5.94 A company has the opportunity to invest in one of two mutually exclusive projects. Project A has an initial cost of $1.2 million and cash flows with a present value of $4.5 million. Project B has an initial cost of $2 million and cash flows with a present value of $5 million. Which project should the firm choose to invest in?Reason: Project A has a higher NPV and is the correct choice: $4.5 million - $1.2 million = $3.3 million. The NPV for Project B is only $5 million - $2 million = $3 millio