Which of the following is true of independent projects with conventional cash flow? Due to time disparity NPV and IRR might make conflicting recommendations. Due to time disparity Pl and IRR might make conflicting recommendations. NPV and IRR will make the same accepts or reject recommendation. Due to size disparity NPV and IRR might make conflicting recommendations.

Which of the following is true of independent projects with conventional cash flow? Due to time disparity NPV and IRR might make conflicting recommendations. Due to time disparity Pl and IRR might make conflicting recommendations. NPV and IRR will make the same accepts or reject recommendation. Due to size disparity NPV and IRR might make conflicting recommendations.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 20E

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Which of the following statements is correct? - NPV method is the only method firms should use to make investment decisions - The internal rate of return method cannot be applied mutually exclusive projects - The disadvantage of modified IRR method is that it would provide multiple IRRs when dealing with unconventional cashflows - The discounted payback period method does not take into account risk of cashflows
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.
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.
Which of following statements is CORRECT? The MIRR and NPV decision criteria can never conflict One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on generally more reasonable reinvestment rate assumption. The IRR method can never be subject to the multiple IRR problem. while the MIRR method can be. I higher the WACC, the shorter the discounted payback period The MIRR method assumes that cash flows are reinvested at the crossover rate.
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.
Which of the following statements is false? (You may select more than one answer.)a. The payback period increases as the cost of capital decreases.b. The simple rate of return will be the same for two alternatives that have identicalcash flow patterns even if the pattern of accounting net operating income differsbetween the alternatives.c. The internal rate of return will be higher than the cost of capital for projects thathave positive net present values.d. If two alternatives have the same present value of cash inflows, the alternative thatrequires the higher investment will have the higher project profitability index.
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. b. If a project has normal cash flows and its IRR exceeds its cost of capital, then the project's NPV must be positive. c. The IRR calculation implicitly assumes that all cash flows are reinvested at the cost of capital. d. If Project A has a higher IRR than Project B, then Project A must have the lower NPV. e. The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
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)
Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT? a. A project's NPV increases as the cost of capital declines. b. A project's MIRR is unaffected by changes in the cost of capital. c. A project's regular payback increases as the cost of capital declines. d. A project's discounted payback increases as the cost of capital declines. e. A project's IRR increases as the cost of capital declines.
What is the difference between independent projects and dependent projects? a: Independent projects' cash flows are not affected by other projects' cash flows b: Dependent project cash flows are affected by others projects' cash flows c: Both of the above are true d: neither of the above is true
Which of the following items describes a weakness of the internal rate-of-return method?a. The internal rate of return is difficult to calculate and requires a financial calculator or spreadsheet tool such as Excel to calculate efficiently.b. Cash flows from the investment are assumed in the IRR analysis to be reinvested at the internal rate of return.c. The internal rate-of-return calculation ignores time value of money.d. The internal rate-of-return calculation ignores project cash flows occurring after the initial investment is recovered.
A tire manufacturing firm is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. What is the cost of capital at which the decision to take project L (or S) based on NPV will contradict the decision based on IRR method? Hint: Calculate the crossover rate and explain how the crossover rate would influence your decision to take project L or project S based on NPV vs. IRR? Show your excel work and thoroughly explain your answer. See cash flows below: Year 0 1 2 3 4 Project L: CFL -$2,050 $770 $780 $790 $795 Project S: CFS -$4,300 $1,300 $1,510 $1,520 $1,530