What are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?

Q: Is the net-investment test the only way to accurately predict projectborrowing?

A: Net investment refers to the total amount of money that a company invests in capital assets which is…

Q: What does the beta of the project represent and how will higher project betas affect your decision?

A: Beta coefficient shows the systematic risk of the assets. In simple words, the beta coefficient…

Q: Determine the internal rate of return of a project?

A: Capital budgeting analysis is useful to know which projects are profitable and which are not. There…

Q: What are the implications of the weak‐form, semi-strong-form, and strong-form of the EMH for…

A: The Efficient Market Hypothesis (EMH) describes a stock market that is both operationally and…

Q: Assuming that your capital is constrained, which project should you invest in last?

A: Here we will have to use the PI (profitability index) ratio. We know that profitability index = 1 +…

Q: What is the profitability index of this project?

A: Profitability index is one of the capital budgeting method which helps in rejecting or accepting the…

Q: Why would the average rate of return differ from the internal rate of return on the same project

A:

Q: How can we aggregate the risk over the project life in terms of net present value?

A: It is an incorporation of the risk level of the project over the life of the in terms of NPV by way…

Q: A firm has two potential investment projects. The project information is summarised in the table…

A: Standard deviation of project A = 175 Standard deviation of project B = 370 Coefficient of variation…

Q: Which projects should the manager choose? If you were given unlimited capital, which projects should…

A: Net Present Value is the difference between present value of cash inflows and present value of cash…

Q: How can the working-capital requirements significantly reduce a project's profitability or rate of…

A: More risky investments would bring about more returns. In this manner, an organization with high…

Q: Many times, project decision makers do not rely solely on financialhurdles, such as return on…

A: Intangible factors are those factors which can not be seen touched or felt. These factors are really…

Q: Explain Target Return on Investment?

A: Investments are done to get the return on the same. Generally, investments are done when an…

Q: What is the required rate of return on the project? (De

A: Capital Asset Pricing Model (CAPM) is a measure used for the measurement of systematic risk. It…

Q: Why do we need to predict how certain costs will behave in response to change activity in project…

A: Cash flow analysis is the way by which financial health of the company can be checked. In this…

Q: Coefficient of variation of Which project has a lower absoute risk level which project project would…

A: Standard Deviation: It is a measure of absolute risk for the investment. Greater the standard…

Q: t are the problems in using the Internal Rate of Return method when making decisions on which…

A: Internal rate of return is rate at which present value of cash flow is equal to the initial…

Q: What is the potentially acceptable investment alternative?

A: An alternative investment is a financial asset that doesn't can be categorized as one of the…

Q: An NPV analysis is one part of a complete captial investment analysis. What is the second part that…

A: Introduction: An analysis of capital investment is the mechanism by which management prepares,…

Q: Why is the net-investment test the only way to accurately predict projectborrowing? Explain with an…

A: Definition: Net- investment measures the company's assets and investment like property, software,…

Q: One must know the discount rate of an investment project to compute its: NPV, IRR, PI and payback…

A: The various tools employed in capital budgeting are Net present value (NPV), Profitability Index…

Q: Which project has no rate of return?

A: Answer: IRR is a measure in capital budgeting used to measure the value of the predicted…

Q: When does the project reach the payback point?

A: The payback period alludes to what extent it takes for a speculator to hit breakeven to recoup the…

Q: What is the value added by the design of the financing package? How does it alter both the return…

A: The question is based on the concept o the financial package, which is explained as a complete…

Q: What is the criteria to accept a project based on the net present value and the internal rate of…

A: Net present value (NPV) Is the difference between present value of all cash inflows and initial…

Q: What is the estimated Internal Rate of Return (IRR) of the project? Should the project be accepted…

A: Calculate the initial investment and operating cash flow for the given investment: Excel formula:

Q: How can we measure the true rate of any internal portion of an investment project?

A: The question is based on the concept of evaluation of different components of a project, it can be…

Q: Can we consider Project Risk by Discount Rate?

A: The discount rate is an interest rate that is used in computing the present value of the future cash…

Q: Describe the Investment Decision for a Nonsimple Project?

A: Answer: In case of simple investment, changes to the cash flow sign can only be made once. For…

Q: How can we measure the true rate of return of any internal portion of an investment project?

A: True rate of return means real rate of return on investment. It is the actual return earned on an…

Q: How do you make an investment decision based on the IRR?

A: IRR is the return actually earned by the investor and discount rate is the return which the investor…

Q: Illustrate Investment Decision for a Nonsimple Project?

A: Investments: Companies invest in stocks and bonds of other companies or governmental entity to…

Q: What it the profitability index for investment project O?

A: Profitability Index = Present Value of cash flows / Initial investment  =$102,500 / $95,000 =1.079

Q: Indicate whether its True or False. Then write the explanation!   The twin advantages with using…

A: Capital budgeting techniques are used to determine whether the investment should be undertaken or…

Q: If you apply the payback decision rule, which investment will you choose? Why? (b) If you apply the…

A: YEAR CASH FLOW A CASH FLOW B       0 -200000 -50000 1 40000 25000 2 60000 22000 3 80000…

Q: Define the term Profitability Index? How can we consider the profitability index of a project?

A: The profitability index (PI), then again alluded to as the value investment ratio (VIR) or profit…

Q: If a firm can structure a project such that expenditures can be madein stages rather than all at the…

A: When expenditure of any project are made in different stages rather than at the beginning then the…

Q: Which provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR?…

A: Internal rate of return (IRR): The internal rate of return (IRR) is a measure utilized in capital…

Q: When can a project may fail the net-investment test?

A: Yes, a firm can initiate the withdrawal of the amount invested from the investment pool in which…

Q: why do we need to quantify the investment risk and returns?

A: Almost all investments possess certain risks and return.

Q: How can we Consider Project Risk by Discount Rate?

A: In corporate finance, a discount rate is the rate of return used to discount future cash flows back…

Q: What is the project's internal rate of return?

A: Answer has been given in the next sheet.