9. PW, FW, AW, and B/C methods will yield the same recommendation regarding investment alternatives. True or False?
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- 29....When using the NPV method the decision making rationale includes the following (select all that apply): a.If projects are mutually exclusive, accept the project with the highest positive NPV. b.If projects are independent, accept if the project NPV<0. c.If projects are independent, accept if the project NPV>0 d.If the projects are mutually exclusive, accept the project with lowest NPV.Answer the two questions below:a) What is the purpose of a project risk analysis, and why is it important in investment decision making?b) What is the difference between accounting break-even and NPV break-even? Which will offer the higher break-even level of output, and why?(a) If you apply the payback decision rule, which investment will you choose? Why? (b) If you apply the NPV decision rule, which investment will you choose? Why? (c) If you apply the IRR decision rule, which investment will you choose? Why? (d) Based on your answers of (a) to (c), which project will you (eventually) choose? Why?
- The decision tree below describes a “sure thing” investment and a “risky” investment. Use backward induction to evaluate which is the better investment. Assume all values are already given in present value terms.Many times, project decision makers do not rely solely on financialhurdles, such as return on investment or internal rates of return, butplace a lot of emphasis on intangible factors. Which are the salient in-tangible factors associated with selecting one of the three options forthe spa?16. Which of the following statements regarding the net present value rule and the rate of return rule is false? A. Accept a project if NPV > cost of investment.B. Accept a project if NPV is positive.C. Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market.D. Reject a project if NPV is negative.
- An investment should be rejected if the IRR is Group of answer choices - equal to the required rate of return - greater than the accounting rate of return - less than the required rate of return - greater than the required rate of returnIf three investment alternatives all have some degree of risk and different expected returns, which of the following measures could best be used to rank the risk levels of the projects? Group of answer choices The standard deviation of returns The coefficient of correlation The coefficient of variation The net present value9. When we use the WACC to assess a project, we assume that the ________ ratio does not change. A. reward to systematic risk B. risk to reward C. debt to equity D. volatility to systematic risk
- e. IMPORTANT Note that from this example that a higher IRR for a nindividual alternative does not gurantee that the alternatvie is more economical than the one with a lower IRR. It is the incremental IRR value relative to the MARR that determines which alternative is more economical. The result of the incremental analysis are always the same as those of the PW,AW, or FW anaylsisConsider the following two mutually exclusive investment projects: Which project would you select if you used the infinite planning horizon withproject repeatability likely (same costs and benefits) based on the PW criterion? Assume that i = 12%.2) The expected return of Project Y is at least equal to the expected return of Project X, and the variance of Y is less than that of X. What would you do? A) Prefer Project Y B) Accept both projects C) Prefer Project X D) Reject both projects.
