Answered: Generally, investors expect that…

Business

Finance

Generally, investors expect that projects with high expected net present values also will be projects with ...

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 24Q: How does the size of the initial investment affect the internal rate of return on the net present...

See similar textbooks

Related questions

Q: Can I calculate the Rate of Return using the NPV/initial investment? Why or why not?

A: When an investment is made in a certain project, its future outcomes are measured based on the money…

Q: Which of the following statements is correct? A. If the NPV of a project is greater than 0,…

A: Capital budgeting Capital budgeting is a concept where potential major projects or investments are…

Q: When do the firm expect to recover the initial investment?

A: The payback period alludes to what extent it takes for a speculator to hit breakeven to recoup the…

Q: Ahsan, an individual investor, is evaluating the investment opportunity. To evaluate this in…

A: Expected rate is the average rate of return considering the the probability of the return. Expected…

Q: Is the following statement true or false? If two investors are considering the same project, the…

A: Payback period refers to the time taken by an investment to recover its initial costs. It is a…

Q: We should accept a project if the Net Present Value is positive and the Internal Rate of Return is…

A: Net present value is referred as the difference between the cash inflow's present value and also…

Q: If the net present value of a proposed investment is positive

A: Net present value method (NPV): Net present value method is the method which is used to compare the…

Q: Another name for the expected value of an investment would be: a. The mean value b. The risk-free…

A: The expected value (EV) is an anticipated value for investment at some point in the future. In…

Q: The profitability index for the project is:

A: Profitability index = Present value of cash inflows / Initial investment Present value of cash…

Q: How can we aggregate the risk over the project life in terms of net present value?

A: It is an incorporation of the risk level of the project over the life of the in terms of NPV by way…

Q: Your firm is considering what has been estimated to be a positive NPV project (NPV > 0). What can…

A: Net Present Value (NPV) is based on the time value of money and is calculated as the sum of present…

Q: What are some possible financial decisions in which using the Present Value (PV) formula might be…

A: The present value (PV) is the current value provided a defined rate of return of a future amount of…

Q: The higher a security's risk, the higher the return investors demand, and thus the less they are…

A: Risk on security is defined as the risk of not getting actual return as per the expectations of the…

Q: Assume that the firm has established a single interest rate for project evaLuation. considering all…

A: Firms always analyze the projects to check their viability because they are going to spend a huge…

Q: What do you know about the mathematical value of the internal rate of return of a project under each…

A: Internal rate of return(IRR) is rate at which net present value(NPV) of project is equal to zero or…

Q: What are the best short-term and long-term investment strategies going forward into the future?

A: Short term investment strategy – Those investment that are usually traded for upto a span of 3 years…

Q: Given the capital allocation line, an investor's optimal complete portfolio is the portfolio that A)…

A: Capital Allocation Line (or CAL) refers to that line in finance that shows risk and reward profile…

Q: r expected return on this investment?

A: Expected return on investment refers to the rate of return that an investor is expecting on an…

Q: Suppose you know that an investment will earna positive return in the future. Why is it important to…

A: The investment may provide a positive return in the future, but the worth of receiving it in future…

Q: if diversification is desired, would you seek investments with high correlation?

A: The question is based on the concept of risk in investment and diversification effect. The risk…

Q: If you have a project combined with above-average market risk, which one of the following decisions…

A: WACC is the average rate cost of capital calculated by multiplying the cost of funds by its weight.…

Q: In one-shot investments, define the planning horizon equal to the shortest life among the investment…

A: The term investment horizon refers to the time period for which an investor holds the particular…

Q: How is it possible to achieve a higher rate of return without significantlyincreasing risk?

A: As we all learnes till now that higher the risk provides higher return and if we want the high…

Q: Consider IRR on Incremental Investment when Initial IRR Flows are equal?

A: Answer: IRR is a measure in capital budgeting used to measure the value of the predicted…

Q: Which of the following statements regarding the net present value rule and the rate of return rule…

A: The question is based on the concept of Financial analysis.

Q: What are some possible financial decisions in which using the Future Value (FV) formula might be…

A: The concept of time value of money states that the money received today is worth more than that the…

Q: Compare and contrast the beta of the project and explain how it will affect the return on investment…

A: Beta coefficient shows the systematic risk of the assets. In simple words, the beta coefficient…

Q: Which of the following investment strategies involves generating a higher expected rate of return…

A: The risk and return of investment are usually positively related. An investor cannot earn an extra…

Q: Explain why the NPV of a relatively long-term project, defined as one for whicha high percentage of…

A: NPV of a project is determined as below: NPV=PV of Cash Inflows -Initial OutlayPV of Cash…

Q: If we compare the betas of various investment opportunities, why do the assets that have higher…

A: Volatility of a particular stock (or security) is determined by measuring the beta. Beta is an…

Q: Which of the following statements describing the elements of intrinsic valuation is most accurate?…

A: Intrinsic value of any project or any assets is how value being added by asset to value of investors…

Q: In capital budgeting decisions, the profitability index and internal rate of return methods will…

A: IRR is the discount rate at which NPV of project is zero. In other words is rate which present value…

Q: Suppose that, for a certain potential investment project, the optimistic, most likely, and…

A: Annual worth is the annual value for all estimated income and costs during the life cycle of the…

Q: Which of the following statements is correct? a. Since investors prefer more return and less…

A: NPV formula: NPV = -INITIAL CASHFLOW+ PRESENT VALUE OF FUTURE CASHFLOW

Q: What is the typical discount rate used with the Net Present Value (NPC) when project risk is the…

A: The net present value (NPV) is the discounted value of benefits less the initial costs. The values…

Q: If a capital project has a hurdle rate higher than its internal rate, then its profitability index…

A: Solution Explanation- A hurdle rate is the minimum rate of return required on a project or…

Q: Which of the following classes of real estate investment has the highest risk level?…

A: Opportunistic real estate investments are the investments on complicated projects and have an…

Q: a. What is the typical discount rate used with the Net Present Value (NPV) when project risk is the…

A: a) The rate of return the stockholders anticipate to get, or the rate at which the firm borrows,…

Q: a. If your decision rule is to accept the project with the greater IRR, which project should you…

A: Net present value is the difference between the present value of cash inflows and the present value…

Q: Which of the following statements is true about the internal rate of return? a. It is the…

A: The internal rate of return is a financial measure used to measure the attractiveness of a…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Generally, investors expect that projects with high expected net present values also will be projects with ...

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

Another name for the expected value of an investment would be: a. The mean value b. The risk-free value c. The certain value d. The upper end value
If we compare the betas of various investment opportunities, why do the assets that have higher betas also have higher average expected rates of return?
Can I calculate the Rate of Return using the NPV/initial investment? Why or why not?
Another name for the expected value of an investment would be: Answer a. The mean value b. The upper-end value c. The certain value d. The risk-free value
If the net present value of a proposed investment is positive
Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. 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. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV. Provide explanation for the choice
How does the size of the initial investment affect the internal rate of return on the net present value models?
What is the expected return of the following investment?
Which provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR? Explain.
Suppose you know that an investment will earna positive return in the future. Why is it important to know the present value of the investment?
Your firm is considering what has been estimated to be a positive NPV project (NPV > 0). What can you say or infer about the project's payback period, discounted payback method, IRR, profitability index, and accounting rate of return?
What are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?