Answered: True or False A project will have…

True or False A project will have multiple internal rates of return if its future net cash flows alternate between negative and positive values.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 5DQ

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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

True or False

A project will have multiple internal rates of return if its future net cash flows alternate between negative and positive values.

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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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 low
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.
Which of the following statements is true about the internal rate of return? a. It is the interest rate that sets a project's net present value at zero. b. It is the minimal acceptable interest rate on an investment. c. It is the difference between the present value of the cash inflows and outflows associated with a project. d. It is the difference between the present value of a cash outflow and the depreciation associated with an asset.
Mathematically, we can determine the rate of return for a given project’s cash flow series by identifying an interest rate that equates the present worth of its cash flows to zero. Select one: True False and explain
dentify if each of the following would be included or excluded in forecasting cash flows for a project. Synergies (positive externality) Opportunity costs Sunk costs Cannibalization (negative externality)
Whenever the present value of the project is greater than the initial cash outlay then both the NPV and PI are positive. Select one: True False
If a project's cash flows are discounted at the internal rate of return, the NPV will always be negative. T/F
What is the 'golden rule' for finding the Internal Rate of Return (IRR) of an investment project cash flow? a)Vary the discount rate until the net present value of the cash flow equals zero. b)Vary the discount rate until the net present value of the cash flow is positive c)Vary the discount rate to the point of maximum increase in the net present value d)Vary the discount rate until the net present value of the cash is negative
Which of the following statements is most correct? If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s profitability index must be positive. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR. Group of answer choices Only statements I and II are incorrect. None of the statements above is incorrect. Only statement II is correct. Only statement I is correct. Only statement III is incorrect.
Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? A. A project's IRR increases as the WACC declines. B. A project's MIRR is unaffected by changes in the WACC. C. A project's regular payback increases as the WACC declines. D. A project's discounted payback increases as the WACC declines. E. A project's NPV increases as the WACC declines.
Which one of the following statements is correct? If the initial cost of a project is increased, the net present value of that project will also increase. The net present value is positive when the required return exceeds the internal rate of return. If the internal rate of return equals the required return, the net present value will equal zero. Net present value is equal to an investment's cash inflows discounted to today's dollars.
When the present value of the cash inflows exceeds the initial cost of a project, then the project should be : A. rejected because NPV is negative. B. accepted because NPV is greater than 1. C. accepted because the profitability index is negative. D. rejected because the internal rate of return is negative.