Wavy Inc is examining a project that requires an initial investment of -10 million today. This will be followed by several years of positive incremental after-tax cash flows. However, during the last year of the project's life Wavy expects that the incremental cash flow will again be negative. By which method should Wavy determine whether or not to invest? A) Both NPV or IRR are fine, as they must arrive at same investment decision B) IRR, because there will be no NPV solution in this case C) Neither NPV or IRR are useful in this situation D) NPV, since this project will have two IRRs
Wavy Inc is examining a project that requires an initial investment of -10 million today. This will be followed by several years of positive incremental after-tax cash flows. However, during the last year of the project's life Wavy expects that the incremental cash flow will again be negative. By which method should Wavy determine whether or not to invest? A) Both NPV or IRR are fine, as they must arrive at same investment decision B) IRR, because there will be no NPV solution in this case C) Neither NPV or IRR are useful in this situation D) NPV, since this project will have two IRRs
Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 19EA: Redbird Company is considering a project with an initial investment of $265,000 in new equipment...
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Wavy Inc is examining a project that requires an initial investment of -10 million today. This will be followed by several years of positive incremental after-tax cash flows. However, during the last year of the project's life Wavy expects that the incremental cash flow will again be negative. By which method should Wavy determine whether or not to invest?
A) Both NPV or IRR are fine, as they must arrive at same investment decision
B) IRR, because there will be no NPV solution in this case
C) Neither NPV or IRR are useful in this situation
D) NPV, since this project will have two IRRs
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