You are reviewing a profitable investment project that has a conventional cash flow pattern but the board of directors requires a smaller investment. If the cash flows for the project, initial outlay, and future after-tax cash flows all half, then the IRR would: Stay the same and the NPV would decrease. Decrease and the NPV would decrease. Stay the same and the NPV would stay the same. Increase and the NPV would increase.

You are reviewing a profitable investment project that has a conventional cash flow pattern but the board of directors requires a smaller investment. If the cash flows for the project, initial outlay, and future after-tax cash flows all half, then the IRR would: Stay the same and the NPV would decrease. Decrease and the NPV would decrease. Stay the same and the NPV would stay the same. Increase and the NPV would increase.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter13: Capital Budgeting: Estimating Cash Flows And Analyzing Risk

Section: Chapter Questions

Problem 8Q

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Companies often use several methods to evaluate the project’s cash flows and each of them has its benefits and disadvantages. Based on your understanding of the capital budgeting evaluation methods, which of the following conclusions about capital budgeting are valid? Check all that apply. The discounted payback period improves on the regular payback period by accounting for the time value of money. For most firms, the reinvestment rate assumption in the NPV is more realistic than the assumption in the IRR. Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually exclusive projects. True or False: Sophisticated firms use only the NPV method in capital budgeting decisions.
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