1. You are considering whether to invest in the strategically important project with forecasted cash flows listed below.

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1. You are considering whether to invest in the strategically
important project with forecasted cash flows listed below. Assume
that the discount rate is 15% per annum. Choose one of five
possibilities listed as the correct decision-making approach to
this specific problem:
Year Cash Flow
0 -1,000,000
1 2,300,000
2
-1,320,000
A. Use NPV rule to make your decision; The IRR rule should not be
used.
B. Use NPV rule to make your decision; The IRR rule can be used
equally well.
C. Use IRR rule to make your decision; The NPV rule will not be
helpful.
D. Neither IRR, nor NPV rules are good decision criteria for this
problem
E. Only Payback Period Rule can be used to make your decision.
2. Klaus Toys just paid its annual dividend of $1.40. The
required return is 16 percent and the dividend growth rate is 2
percent. Assume constant dividend growth model. What is the value
of this stock five years from now?
A. $11.04
B. $11.26
C. $11.67
D. $12.41
E. $12.58