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1. Net Present Value is considered a better method than Internal Rate of Return for all of the following reasons except __________.

a) IRR may misrank mutually exclusive projects of different size

b) IRR can not be used when capital rationing exists

c) IRR may have multiple IRR's if the project is nonnormal

d) IRR assumes cash flows can be reinvested at the project's IRR

2. Which of the following is true for normal projects if the cost of capital is positive?

a. If a project's IRR is positive, then its Profitability Index will greater than 1

b. If a project's NPV is negative, then its Payback period will not exist

c. If a project's NPV is positive, then its Profitability Index will be positive

d. If a project's IRR is positive, then its Discounted Payback period will exist

3. __________ is a method used to compare two repeatable projects with different lives.

  1. Crossover Rate
  2. Equivalent Annual Annuity
  3. Scenario Analysis
  4. Risk Adjusted Discount Rate

4. The __________ is the rate at which two projects have the same NPV is found by calculating the IRR of the difference in the cash flows of two projects.

  1. Risk Adjusted Discount Rate
  2. Marginal Cost of Capital
  3. Crossover Rate
  4. Optimal Capital Budget

5. Which of the following is NOT considered a relevant concern in determining incremental cash flows for a new product?

  1. The use of high quality factory floor space that is currently unused but is available for production of other products.
  2. Revenues from an existing product that would be lost as a result of customers switching to the new product.
  3. Shipping and installation costs associated with preparing the machine to be used to produce the new product.
  4. The cost of a marketing study completed last year related to the new product.

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Irving Heathcote
Irving HeathcoteLv2
28 Sep 2019

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Related questions

2. Which of the following is true for normal projects if the cost of capital is positive?

a) If a project's IRR is positive, then its NPV will always be positive

b) If a project's NPV is negative, then its Modified IRR will be negative

c) If a project's NPV is positive, then its Profitability Index will always be positive

d) If a project's IRR is positive, then its Discounted Payback Period will exist

Please answer with explanation and correctly. I have answer sheet with me. wrong answer will give you a thumb down.

Mark the statements below as true or false:

-Because investors like dividends, the higher the company's dividend growth rate, the lower the company's cost of common equity.

-Both the profitability index (PI) and net present value (NPV) are based on the present value of all future free cash flows, but the PI is a relative measure while the NPV is an absolute measure of a project's desirability.

-If a project is acceptable using the NPV criteria, it will also be acceptable when using the profitability index and IRR criteria.

-If a project's IRR is equal to its required return, then the project's NPV is equal to zero and its PI is equal to one.

-In order to create value a corporation must earn a rate of return on its invested capital that is higher than the market's required rate of return on that invested capital.

Capital budgeting criteria

A firm with a 13% WACC is evaluating two projects for this year's capital budget. After-tax cash flows, including depreciation, are as follows:

0 1 2 3 4 5

Project A -$12,000 $4,000 $4,000 $4,000 $4,000 $4,000
Project B -$36,000 $11,200 $11,200 $11,200 $11,200 $11,200

Calculate NPV for each project. Round your answers to the nearest cent.
Project A $
Project B $

Calculate IRR for each project. Round your answers to two decimal places.
Project A %
Project B %

Calculate MIRR for each project. Round your answers to two decimal places.
Project A %
Project B %

Calculate payback for each project. Round your answers to two decimal places.
Project A years
Project B years

Calculate discounted payback for each project. Round your answers to two decimal places.
Project A years
Project B years

Assuming the projects are independent, which one or ones would you recommend?
-Select-
Only Project B would be accepted because NPV(B) > NPV(A).
Both projects would be accepted since both of their NPV's are positive.
Only Project A would be accepted because IRR(A) > IRR(B).
Both projects would be rejected since both of their NPV's are negative.
Only Project A would be accepted because NPV(A) > NPV(B).
Item 11

If the projects are mutually exclusive, which would you recommend?
-Select-
If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project A.
If the projects are mutually exclusive, the project with the highest positive MIRR is chosen. Accept Project A.
If the projects are mutually exclusive, the project with the shortest Payback Period is chosen. Accept Project A.
If the projects are mutually exclusive, the project with the highest positive IRR is chosen. Accept Project B.
If the projects are mutually exclusive, the project with the highest positive NPV is chosen. Accept Project B.
Item 12

Notice that the projects have the same cash flow timing pattern. Why is there a conflict between NPV and IRR?
-Select-
The conflict between NPV and IRR is due to the relatively high discount rate.
The conflict between NPV and IRR is due to the fact that the cash flows are in the form of an annuity.
The conflict between NPV and IRR is due to the difference in the timing of the cash flows.
There is no conflict between NPV and IRR.
The conflict between NPV and IRR occurs due to the difference in the size of the projects.
Item 13

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