1. A company is considering a new investment project, which requires an initial outlay of $500,000 and is expected to generate cash flows of $150,000 annually for 5 years. The company's cost of capital is 10%. What is the Net Present Value (NPV) of the project? - A) $250,000 - B) $75,000 - C) -$25,000 - D) $0 Answer: C) -$25,000 Rationale: NPV is calculated as the sum of the present values of incoming cash flows minus the initial investment. Using the formula NPV = ∑ (Cash flow / (1 + r)^t) - initial investment, where r is the discount rate and t is the time period, the NPV of this project is -$25,000, indicating it may not be a profitable investment. 2. If a firm has a Beta of 1.2, the risk-free rate is 3%, and the expected market return is 8%, what is the expected return of the firm's stock according to the Capital Asset Pricing Model (CAPM)?