When evaluating capital projects, the decisions using the NPV method and the IRR method will disagree if: Group of answer choices the cash flow pattern is conventional. the projects are mutually exclusive. the cash flow pattern is unconventional and the projects are mutually exclusive. the projects are independent.

When evaluating capital projects, the decisions using the NPV method and the IRR method will disagree if: Group of answer choices the cash flow pattern is conventional. the projects are mutually exclusive. the cash flow pattern is unconventional and the projects are mutually exclusive. the projects are independent.

Name: When evaluating capital projects, the decisions using the NPV method a
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Description: When evaluating capital projects, the decisions using the NPV method and the IRR method will disagree if:Group of answer choicesthe cash flow pattern is conventional.the projects are mutually exclusive.the cash flow pattern is unconventional and the

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 1DQ: What are the principal objections to the use of the average rate of return method in evaluating...

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Discuss the principal limitations of the cash payback method for evaluating capital investment proposals.
What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals?
What are the principal objections to the use of the average rate of return method in evaluating capital investment proposals? Discuss the principal limitations of the cash payback method for evaluating capital investment proposals. What information does the cash payback period ignore that is included by the net present value method? Why would the cash payback method understate the value of a project with a large residual value? What are the major disadvantages of the use of the net present value method of analyzing capital investment proposals? Give examples of qualitative factors that should be considered in a capital investment analysis related to acquiring automated factory equipment.
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?
For a capital investment project to be acceptable, it must generate a rate of return: O Less than the required rate of return. O Equal to or greater than the cost of capital. 4 O Equal to the initial investment. none of the above answers are correct.
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 statements is most correct? If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value (NPV) 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 cost of capital. Answers a and c are correct. None of the answers above are correct.
For a capital investment project to be acceptable, it must generate a rate of return A) Less than the required rate of returnB) Equal to or greater than the cost of capitalC) equal to the initial investmentD) none of the above
Which of the following statements is inaccurate under perfect capital markets? A. The NPV of a project determines whether it is worth investing in it B. How much an investor should invest in a particular project does not depend on the investor’s risk preferences C. Whether an investor should invest in a project or not does not depend on the investor’s intertemporal preferences D. Whether a long term project should be undertaken does not depend on whether the investor is patient or impatient
Compare capital budgeting decision criteria, Net Present Value (NPV) and Internal Rate of Return (IRR). Is it possible for conflicts to exist between the NPV and the IRR when mutually exclusive projects are being evaluated? Explain.
Several proposed capital projects which are economically acceptable may have to be ranked due to constraints in financial resources. In ranking these projects, the least pertinent is this statement. A. A ranking procedure on the basis of quantitative criteria may be established by specifying a minimum desired rate of return, which rate is used in calculating the net present value of each project. B. In selecting the required rate of return, one may either calculate the organization’s cost of capital or use a rate generally acceptable in the industry. C. If the internal rate of return method is used in the capital rationing problem, the higher the rate, the better the project. D. If the net present value method is used, the profitability index is calculated to rank the projects. The lower the index, the better the project.
The methods of evaluating capital investment proposals can be grouped into two general categories referred to as (1) methods that do not use present values and (2) methods that use present values. True False