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1. What is the best way, in theory, to select projects to be accepted, when a company is faced with a limited budget?
   1. The project with the highest internal rate of return should be selected then the one with the second highest rate of return and so on until all of the funds are exhausted.
   2. A feasible group of the largest number of projects that minimizes the total initial outlay should be selected.
   3. The project with the highest net present worth should be selected then the one with the second highest rate of return and so on until all of the funds are exhausted.
   4. A feasible group of projects with the highest total net present worth possible should be selected.
2. The risk-free rate of return
   1. is higher for the shareholders than for the bondholders.
   2. is equal to zero.
   3. is made up of the time preference rate and the expected inflation rate.
   4. is determined by the central bank.
3. Capital budgeting refers to

1. the company's separate budgets for each individual operating unit
2. the process that the company uses to determine the proportions of debt and equity in its capital structure
3. the company's compliance with the SEC regulations regarding the company's process of projecting revenues and expenses.
4. the process that is used to decide which of the proposed company projects are funded.

4. A project can be rejected due to
   1. its payback period being too low.
   2. lack of funds available.
   3. surplus of funds available.
   4. its internal rate of return being too high.

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