4 Question 2Select all that are true with respect to the IRR rule for making capital investment decisions.The IRR rule does not distinguish between borrowing and lendingO One can use the IRR rule for investment decision making without knowing the discount rateThe project with the highest IRR does not necessarily create the most value addThe IRR rule ignores cash flows that are very far in the futureThe project with the highest IRR is by definition the project with the most value addO The IRR is the discount rate that makes the project's NPV equal to zeroQuestion 3Select all that are true with respect to the payback period for making capital investment decisions.O The payback period is the amount of time it takes for a project to generate breakeven incomeO The payback period is the amount of time it takes for a project's cumulative cash flows to become zeroO The payback period ignores all cash flows beyond a specified required payback periodO The payback period ignores a project's initial investmentThe payback period ignores the time value of money

Question 2: The concerned question belongs to Time value of money where different methoda are used…

Answered: O One can use the IRR rule for…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Select all that are true with respect to the IRR rule for making capital investment decisions. Group of answer choices The IRR rule does not distinguish between borrowing and lending One can use the IRR rule for investment decision making without knowing the discount rate The project with the highest IRR does not necessarily create the most value add The IRR rule ignores cash flows that are very far in the future The project with the highest IRR is by definition the project with the most value add The IRR is the discount rate that makes the project's NPV equal to zero
Which of the following statements about the "payback method" of selecting capital projects is true? Question 15 options: A) The payback method considers all cash flows, even those that occur after the payback has been reached. B) In the payback method, all cash flows are disregarded. C) The payback method has many deficiencies. D) The payback method always leads to the same decision as the other investment selection methods.
Why the payback method is often considered inferior to discounted cash flow in capital investment appraisal? Select one: a. It is more difficult to calculate b. It does not calculate how long it will take to recoup the money invested c. It only takes into account the future income of a project d. None of the option e. It does not take account of the time value of money
Question 1 Which one of the following statements is NOT correct? Group of answer choices If the initial cost of a project is increased, the net present value of that project will decrease. The MIRR is specifically designed to address conventional cash flows. If the internal rate of return equals the required return, the net present value will equal zero. Net present value is equal to the investment’s cash inflows discounted to today's dollars minus the initial cost of the investment. Net present value is negative when the required return exceeds the internal rate of return.
(7.1) Why do we only include free cash flows when evaluating a project using the NPV project evaluation method? Select one: a. Because only free cash flows are tax-deductible. b. Because free cash flows exclude financing costs, because these are included in the cost of capital which is the discount rate used to determine the NPV. c. Because free cash flows are always positive cash inflows. d. Because free cash flows do not cost the firm anything.
1. The payback criterion for capital investment decisionsa. is conceptually superior to the IRR criterion b. takes into consideration the time value of money c. gives priority to rapid recovery of cash d. emphasizes the most profitable projects
Question 5: Find the net present value, interpret whether the NPV suggests you should accept or reject the project, find the payback period, find the discounted payback period, find the profitability index, interpret whether the profitability index suggests you should accept or reject the project, find the internal rate of return, explain whether the internal rate of return can repay the cost of borrowing money to conduct the project, find the modified internal rate of return, and explain with the modified internal rate of return can repay the cost of borrowing money to conduct the project. All for the following situation: The initial capital outlay is $175,000, the first-year annual operating cash flow is projected to be 20,000 but should grow by 5% per year during each of the project's 30 years, the after-tax-salvage cash flow is guessed to be $500,000, the required rate of return on this project is 15.50% and the company weighted average cost of capital is 12.50%.
Question7 In discounted cash flow analysis, which of the following is a bad decision rule for a normal investment project? A If internal rate of return (IRR) is greater than the cost of capital then reject B If IRR is less than cost of capital then reject C If net present value (NPV) is greater than 0 then accept D If NPV is negative then reject
QUESTION #1: Which of the following is a disadvantage of using the IRR method of capital budgeting over other types: A- IRR does not consider the time and value of money. B- IRR assumes reinvestment of project cash flows at the same rate as the IRR C- IRR ignores the prudent simplicity of paybacks D- None of the above QUESTION #2: The net present value (NPV) of an investment is___________. A- The present value of all benefits (cash inflows) B- The present value of all costs (cash outflows) of the project C- The present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project D- The present value of all benefits (cash outflows) minus the present value of all costs (cash inflows) of the project
3. I need help with multiple choice finance home work question Which of the following statements is incorrect? If a firm's target average accounting return is less than that calculated for a given project then the project should be accepted. If the NPV of a project is positive, it should be accepted. If a project has a payback which is faster than the company requires the project should be accepted. If the cost of capital is greater than the IRR, the project should be accepted. If a project has a profitability index greater than one the project should be accepted.
6. Assuming that their NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. Group of answer choices True False
Select all that are true with respect to the NPV rule for making capital investment decisions. Group of answer choices When done correctly, NPV directly measures expected value creation NPV ignores cash flows in the distant future NPV causes decision makers to be myopic For independent projects, all positive NPV projects should be taken, and negative NPV projects should not be taken For mutually exclusive projects, choose the project with the highest NPV

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