FINC430 Quiz 3

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.   a. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.     b. If a project has normal cash flows and its IRR exceeds its cost of capital, then the project's NPV must be positive.     c. The IRR calculation implicitly assumes that all cash flows are reinvested at the cost of capital.     d. If Project A has a higher IRR than Project B, then Project A must have the lower NPV.     e. The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one cash outflow at t = o followed by a series of positive cash flows. a. To find a project's MIRR, we compound cash inflows at the regular IRR and then find the discount rate that causes the PV of the terminal value to equal the initial cost. b. To find a project's MIRR, the textbook procedure compounds cash inflows at the WACC and then finds the discount rate that causes the PV of the terminal value to equal the initial cost. c. A project's MIRR is always greater than its regular IRR. d. If a project's IRR is greater than its WACC, then its MIRR will be greater than the IRR. e. A project's MIRR is always less than its regular IRR.

Mathematically, we can determine the rate of return for a given project’s cash flow series by identifying an interest rate that equates the present worth of its cash flows to zero. Select one: True False and explain

Which of the following statements is most correct? If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s profitability index must be positive. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR. Group of answer choices Only statements I and II are incorrect. None of the statements above is incorrect. Only statement II is correct. Only statement I is correct. Only statement III is incorrect.

Suppose that, for a certain potential investment project, the optimistic, most likely, and pessimistic estimates are as shown in the accompanying table. Solve, a. What is the AW for each of the three estimation conditions? b. It is thought that the most critical factors are useful life and net annual cash flow. Develop a table showing the net AW for all combinations of the estimates forthese two factors, assuming all other factors to be at their most likely values.

which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate.  3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money

Which of the following statements is CORRECT?   a. If a project with normal cash flows has an IRR greater than the cost of capital, the project must also have a positive NPV.     b. If a project with normal cash flows has an IRR less than the cost of capital, the project must have a positive NPV.     c. If the NPV is negative, the IRR must also be negative.     d. A project's MIRR can never exceed its IRR.     e. If Project A's IRR exceeds Project B's, then A must have the higher NPV.

If a project with conventional cash flows has an IRR equal to the required return, then: O The profitability index is one. O The IRR must be zero. O The project should be accepted, as the NPV is greater than zero. O The payback period is less than the maximum acceptable period. The NPV is negative.

For a typical project evaluation with initial investment at time=0 and positive cash flows afterwards, each statement in the following shows possible answers in parenthesis. Choose the answer that shows correct answers for all statements. Statement 1: When NPV = 0, investors earn (negative/zero/positive) return. Statement 2: Accept the project when valuation is (higher/the same/lower) than the cost. Statement 3: When IRR> cost of capital,  NPV is (negative/zero/positive). Statement 4: Cost of capital is determined by the (company/investors) considering the (business risk/systematic) risk)   a. negative, higher, positive, investors and systematic b. positive, lower, positive, investors and business c. positive, higher, zero, company and systematic d. positive, higher, positive, investors and systematic

A project's internal rate of return (IRR) is the  that forces the PV of its inflows to equal its cost. The IRR is an estimate of the project's rate of return, and it is comparable to the  on a bond. The equation for calculating the IRR is:     CFt is the expected cash flow in Period t and cash outflows are treated as negative cash flows. There must be a change in cash flow signs to calculate the IRR. The IRR equation is simply the NPV equation solved for the particular discount rate that causes NPV to equal . The IRR calculation assumes that cash flows are reinvested at the . If the IRR is  than the project's risk-adjusted cost of capital, then the project should be accepted; however, if the IRR is less than the project's risk-adjusted cost of capital, then the project should be . Because of the IRR reinvestment rate assumption, when  projects are evaluated the IRR approach can lead to conflicting results from the NPV method. Two basic conditions can lead to conflicts between NPV and…

Which of the following statements is most correct? If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value (NPV) must be positive. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital. Answers a and c are correct. None of the answers above are correct.

Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must have a higher NPV than 2. e. If a project with normal cash flows has an IRR greater than WACC, the project must have a positive NPV. You purchase a house for $250,000. After you make your down payment of $50,000, you are financing $200,000 for 30 years at an annual percentage rate of 5.4%. How much are your monthly payments? Select one: a. Less than $1,000 b. Between $1,000 and $1,050 c. Between $1,050 and $1,100 d. Between $1,100 and $1,150 e. Greater than $1,200

Which of the following statements is most FALSE? A. If a project with normal cash flows has a positive NPV, it will definitely have an MIRR greater than the cost of capital. B. If a project with normal cash flows has an IRR that is greater than the cost of capital, then taking on that project would decrease the value of the firm. C. If a project has normal cash flows, then the MIRR has to be between k and IRR if the project has positive interim cash flows (cash flows between t=0 and the end of the project). D. If a project with normal cash flows does not have any interim cash flows, the project's IRR will equal the project's MIRR. E. Multiple IRRS can exist for a project if the project has nonnormal cash flows. OA OB OC

What is the difference between CAPM beta and cash-flow beta (from certainty equivalency approach)? Can just use bullet points for this one because it is urgent, I need this by today. Thank you!

The internal rate of return (IRR): Group of answer choices will always lead to the same decision as will NPV. is a "purer" discount rate because is excludes all external project cash flows. is the discount rate that produces NPV of zero for a series of cash flows. None of the above

Which of the following is an advantage of the internal rate of return (IRR) rule? Multiple choice question. It is easy to understand and communicate. It can be applied to projects with non-conventional cash flows. It always gives multiple IRRs for non-conventional cash flows. It needs less input data than the NPV method.

3. In a comparison of the NPV and IRR techniques, which of the following is true? statements A. Both methods give the same accept or reject decision, regardless of the pattern of the cash flows. B. IRR is technically superior to NPV and easier to calculate. C. The NPV approach is superior if discount rates are expected to vary over the life of the project. D. NPV and accounting ROCE can be confused.

If you have a project combined with above-average market risk, which one of the following decisions should you make? Accept if the IRR is greater than the WACC. Use a higher discount rate than the WACC to reflect the project's risk and accept if NPV is positive at this higher discount rate. Accept if the cash flows discounted at the WACC have a positive NPV. Discount the cash flows at the IRR and accept if NPV is positive.

Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. I. One defect of the IRR method is that it does not take account of the time value of money. II. One defect of the IRR method is that it does not take account of the cost of capital. III. A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost. O I and III only SO I only O I, II and III O II and III only O III only

This is a multiple choice question.

Whenever the present value of the project is greater than the initial cash outlay then both the NPV and PI are positive. Select one: True False

Under which one of the capital budgeting, projects is the sum of all present values of all cash inflows minus present value of outflows? а. Post payback period b. Payback period С. Internal rate of return d. Net present value method When evaluating a proposed project under capital budgeting by the net present value method, if the NPV negative, the proposal is should be rejected. Select one: True False