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A very large organization is financed by both debt and equity. It evaluates all projects on the basis of their net present value (NPV) using an organization wide weighted average cost of capital as the discount rate.

For a small project, which TWO of the following would affect the project's cash flows AND the discount rate?

Options:

Taxation rates

Inflation rates

Depreciation rates

Changes in working capital

The project's terminal value

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Question 2

A company has just received the latest in a series of annual payments; this payment was $620. The annual payments are expected to continue for three more years with each payment being increased by the expected rate of inflation. The real cost of capital is 8% per year and the expected rate of inflation is 6% per year.

What is the present value of the future payments the company expects to receive?

Give your answer to the nearest $.

Options:

Question 3

Which of the following is the ideal basis to use for a transfer price when there is a perfect external market?

Options:

Actual variable cost

Market price

Standard variable cost

Full cost plus

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