I. If there is a positive NPV, IRR is higher than the cost of capital. II. If annual net cash inflow is equal to the cost of investment, then, NPV is zero. A• FF B• TF C• TT D• FT
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I. If there is a positive NPV,
II. If annual net
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- When using the NPV method for a particular investment decision, if the present value of all cash Inflows Is greater than the present value of all cash outflows, then _______ . A. the discount rate used was too high B. the investment provides an actual rate of return greater than the discount rate C. the investment provides an actual rate of return equal to the discount rate D. the discount rate is too lowWhich of the following discounts future cash flows to their present value at the expected rate of return, and compares that to the Initial Investment? A. internal rate of return (IRR) method B. net present value (N PV) C. discounted cash flow model D. future value methodIncremental cash flow is calculated as (cash flowB− cash flowA), where B represents the alternative with the larger initial investment. If the two cash flows were switched wherein B represents the one with the smaller initial investment, which alternative should be selected if the incremental rate of return is 20% and the MARR is 15%? Explain.
- Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? a. A project's NPV increases as the cost of capital declines. b. A project's MIRR is unaffected by changes in the cost of capital. c. A project's regular payback increases as the cost of capital declines. d. A project's discounted payback increases as the cost of capital declines. e. A project's IRR increases as the cost of capital declines.Suppose an investment has conventional cash flows with positive NPV. how would it impact your decision based on capital budgeting techniques mentioned below? 1.profitability index 2.internal rate of return 3.payback periodWhich of the following statements are correct? The internal rate of return (IRR) generated by a positive cash flow stream of n payments. (a)is always smaller or equal than +1 (b)is always given by the solution of a quadratic equation (c)is always bigger or equal than -1 (d)can be 17 for a suitable cashflow (e)can be -2 for a suitable cashflow
- If a project's cash flows are discounted at the internal rate of return, the NPV will always be negative. T/FIf cashflows are discounted at____ the net present value is zero a. Internal rate of return O b. Wighted average cost of capital O c. Higher payback period O d. Any payback periodThe rate of return that equates the present value of cash inflows and outflows is the: A. hurdle rate.B. desired rate of return.C. internal rate of return. D. minimum rate of return.
- All of the following statements regarding NPV are true EXCEPT:a. A positive NPV indicates the present value of the cash flows exceeds the initial investment.b. A negative NPV indicates the present value of the cash flows is less than the initial investment.c. An NPV equal to zero indicates the present value of the cash flows is equal to the initial investment.d. The internal rate of return is the discount rate that causes the initial investment to exceed the present value of the cash flows.A project's IRR: A) All of these answers are correct. B is the average rate of return necessary to pay back the project's capital providers. C is equal to the discounted cash flows divided by the number of cash flows if the cash flows are a perpetuity. D will change with the cost of capital.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…