Net Present Value and Correct Answer

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Question 1 2 out of 2 points | | | Assume that the economy is in a mild recession, and as a result interest rates and money costs generally are relatively low. The WACC for two mutually exclusive projects that are being considered is 8%. Project S has an IRR of 20% while Project L 's IRR is 15%. The projects have the same NPV at the 8% current WACC. However, you believe that the economy is about to recover, and money costs and thus your WACC will also increase. You also think that the projects will not be funded until the WACC has increased, and their cash flows will not be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?Answer | | | | | Selected Answer: |…show more content…
| Correct Answer: | The higher the WACC used to calculate the NPV, the lower the calculated NPV will be. | | | | | Question 8 2 out of 2 points | | | Which of the following statements is CORRECT?Answer | | | | | Selected Answer: | An NPV profile graph is designed to give decision makers an idea about how a project’s contribution to the firm’s value varies with the cost of capital. | Correct Answer: | An NPV profile graph is designed to give decision makers an idea about how a project’s contribution to the firm’s value varies with the cost of capital. | | | | | Question 9 2 out of 2 points | | | Which of the following statements is CORRECT?Answer | | | | | Selected Answer: | If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years. | Correct Answer: | If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years. | | | | | Question 10 2 out of 2 points | | | 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

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