O The NPV and IRR methods, when used to evaluate two independent and equally risky projects, will lead to different accept/reject decisions and thus capital budgets if the projects' IRRs are greater than their cost of capital. O No conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross. O The primary reason that the NPV method is conceptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRS may exist, and when that happens, we don't know which IRR is relevant. The NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, will lead to different accept/reject decisions and thus capital budgets if the cost of capital at which the projects' NPV profiles cross is less than the projects' cost of capital. OTwo of the statements are correct.

O The NPV and IRR methods, when used to evaluate two independent and equally risky projects, will lead to different accept/reject decisions and thus capital budgets if the projects' IRRs are greater than their cost of capital. O No conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross. O The primary reason that the NPV method is conceptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRS may exist, and when that happens, we don't know which IRR is relevant. The NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, will lead to different accept/reject decisions and thus capital budgets if the cost of capital at which the projects' NPV profiles cross is less than the projects' cost of capital. OTwo of the statements are correct.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 4Q

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Using IRR, a project is rejected if the IRR a. is equal to the required rate of return. b. is less than the required rate of return. c. is greater than the cost of capital. d. is greater than the required rate of return. e. produces an NPV equal to zero.
When two mutually exclusive projects are being compared, explain whythe short-term project might be ranked higher under the NPV criterion ifthe cost of capital is high, whereas the long-term project might be deemedbetter if the cost of capital is low. Would changes in the cost of capital evercause a change in the IRR ranking of two such projects? Why or why not?
When two mutually exclusive projects are being compared, explain why the short-term project might be ranged higher under the NVP criterion if the cost of the capital is high, whereas the long-term project might be deemed better if the cost of capital is low. Would changes in the cost of capital ever cause a change in the IRR ranking of two such projects? Why or why not?
You should accept a project when the ?: net present value is negative. profitability index is positive. payback period exceeds the required period. AAR is greater than the required return. 7. Which one of the following statements is correct? The payback period is also referred to as the benefit-cost ratio. The internal rate of return can be reliably used for all independent projects. The profitability index is used when the investment funds are limited. The net present value should not be used to rank mutually exclusive projects. 8. You should accept a project when the ?: net present value is negative. profitability index is less than 1 but greater than 0. discounted payback period is less than the required period. AAR is less than the required return. 9. The crossover point ? : is used to determine which one of two internal rates of return for a project should be used when determining if a project should be accepted. 2. is the…
Which of the statements below describes the correct capital budgeting decision rule? i. Reject a project if the NPV is less than the IRR. ii. Accept a project if the cost of capital exceeds the IRR. iii. Reject a project if the cost of capital is above the IRR. iv. Accept a project if the cost of capital is more than the NPV.
Which statement is correct? Group of answer choices a. IRR will give you correct decision if it is applied to mutually exclusive projects. b. IRR rule is the best rule to apply when making capital budgeting decisions. c. NPV will give you incorrect decision if it is applied to mutually exclusive projects. d. If NPV and IRR give you contradictory decisions, you should follow NPV.
Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must have a higher NPV than 2. e. If a project with normal cash flows has an IRR greater than WACC, the project must have a positive NPV. You purchase a house for $250,000. After you make your down payment of $50,000, you are financing $200,000 for 30 years at an annual percentage rate of 5.4%. How much are your monthly payments? Select one: a. Less than $1,000 b. Between $1,000 and $1,050 c. Between $1,050 and $1,100 d. Between $1,100 and $1,150 e. Greater than $1,200
Which of the following is correct? • the shorter a projects payback period, the less desirable the project is normally considered to be by this criterion • one drawback of the payback criterion is that this method does not take account of cash flows beyond the payback period. • if a projects payback is postitive, then the project should be accepted because it must have a positive NPV • the regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem •one drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback.
8. Which of the following statements is CORRECT? Group of answer choices If two projects are mutually exclusive, then they are likely to have multiple IRRs. For a project to have more than one IRR, then both IRRs must be greater than the WACC. If a project is independent, then it cannot have multiple IRRs. Multiple IRRs can only occur if the signs of the cash flows change more than once. If a project has two IRRs, then the smaller one is the one that is most relevant, and it should be accepted and relied upon.
An independent capital investment project requires an initial cash outflow at time 0, followed by cash inflows for times 1 to 3. Without knowing any of the figures involved, how will this project be appraised under NPV and IRR? The project will be rejected under NPV, but will be acceptable under IRR The NPV decision will be the same as the IRR decision (i.e. accept or reject the project) The project will be acceptable under NPV, but rejected under IRR The NPV decision will be the opposite of the IRR decision (i.e accept or reject the project)
This is a situation where you have mutually exclusive capital budgets to choose from. You look at an NPV profile knowing that the cost of capital is smaller than the cross-over point. In this area of the graph,Group of answer choices A.You should never select any capital project when the cost of capital (WACC) is less than the cross over point. B.In this situation you should not use the IRR nor the NPV to choose between capital budgeting projects. C.if you choose based on which project has the highest IRR, you will make an incorrect decision. Instead you should choose the project with the highest NPV. D.if you choose based on which project has the highest NPV, you will make an incorrect decision. You should choose the project with the highest IRR.
NPV and IRR are two of the most important decision criteria in capital budgeting. Will NPV and IRR methods always yield the same accept/reject decision? Please elaborate and list one potential cause of ranking conflicts between NPV and IRR.