Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
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Textbook Question
Chapter 12, Problem 12MCQ
Using
- a. equal to zero.
- b. negative.
- c. positive.
- d. equal to the required
rate of return . - e. greater than the cost of capital.
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Which of the following statements is CORRECT?
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a. If a project with normal cash flows has an IRR greater than the cost of capital, the project must also have a positive NPV.
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b. If a project with normal cash flows has an IRR less than the cost of capital, the project must have a positive NPV.
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c. If the NPV is negative, the IRR must also be negative.
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d. A project's MIRR can never exceed its IRR.
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e. If Project A's IRR exceeds Project B's, then A must have the higher NPV.
If net present value for a project is negative, then____.
a.
IRR is equal to Cost of capital
b.
IRR is greater than Cost of capital
c.
Benefit Cost Ratio is greater than 1
d.
IRR is less than Cost of capital
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.
Chapter 12 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
Ch. 12 - Prob. 1DQCh. 12 - Explain why the timing and quantity of cash flows...Ch. 12 - The time value of money is ignored by the payback...Ch. 12 - What is the payback period? Compute the payback...Ch. 12 - Name and discuss three possible reasons that the...Ch. 12 - Prob. 6DQCh. 12 - The NPV is the same as the profit of a project...Ch. 12 - Explain the relationship between NPV and a firms...Ch. 12 - Prob. 9DQCh. 12 - What is the role that the required rate of return...
Ch. 12 - Explain how the NPV is used to determine whether a...Ch. 12 - The IRR is the true or actual rate of return being...Ch. 12 - Prob. 13DQCh. 12 - Explain why NPV is generally preferred over IRR...Ch. 12 - Suppose that a firm must choose between two...Ch. 12 - Prob. 1MCQCh. 12 - To make a capital investment decision, a manager...Ch. 12 - Mutually exclusive capital budgeting projects are...Ch. 12 - Prob. 4MCQCh. 12 - An investment of 1,000 produces a net cash inflow...Ch. 12 - The payback period suffers from which of the...Ch. 12 - Prob. 7MCQCh. 12 - An investment of 2,000 provides an average net...Ch. 12 - If the NPV is positive, it signals a. that the...Ch. 12 - Prob. 10MCQCh. 12 - Prob. 11MCQCh. 12 - Using NPV, a project is rejected if it is a. equal...Ch. 12 - If the present value of future cash flows is 4,200...Ch. 12 - Assume that an investment of 1,000 produces a...Ch. 12 - Which of the following is not true regarding the...Ch. 12 - Using IRR, a project is rejected if the IRR a. is...Ch. 12 - Prob. 17MCQCh. 12 - Postaudits of capital projects are useful because...Ch. 12 - For competing projects, NPV is preferred to IRR...Ch. 12 - Assume that there are two competing projects, A...Ch. 12 - Prob. 21BEACh. 12 - Accounting Rate of Return Uchdorf Company invested...Ch. 12 - Net Present Value Snow Inc. has just completed...Ch. 12 - Internal Rate of Return Lisun Company produces a...Ch. 12 - NPV and IRR, Mutually Exclusive Projects Hunt Inc....Ch. 12 - Prob. 26BEBCh. 12 - Accounting Rate of Return Cannon Company invested...Ch. 12 - Net Present Value Talmage Inc. has just completed...Ch. 12 - Internal Rate of Return Richins Company produces...Ch. 12 - NPV and IRR, Mutually Exclusive Projects Techno...Ch. 12 - Prob. 31ECh. 12 - Accounting Rate of Return Each of the following...Ch. 12 - Net Present Value Each of the following scenarios...Ch. 12 - Internal Rate of Return Each of the following...Ch. 12 - Net Present Value and Competing Projects Spiro...Ch. 12 - Payback, Accounting Rate of Return, Net Present...Ch. 12 - Prob. 37ECh. 12 - Net Present Value, Basic Concepts Wise Company is...Ch. 12 - Solving for Unknowns Each of the following...Ch. 12 - Net Present Value versus Internal Rate of Return...Ch. 12 - Basic Net Present Value Analysis Jonathan Butler,...Ch. 12 - Net Present Value Analysis Emery Communications...Ch. 12 - Basic Internal Rate of Return Analysis Julianna...Ch. 12 - Net Present Value, Uncertainty Ondi Airlines is...Ch. 12 - Review of Basic Capital Budgeting Procedures Dr....Ch. 12 - Net Present Value and Competing Alternatives...Ch. 12 - Kildare Medical Center, a for-profit hospital, has...Ch. 12 - Foster Company wants to buy a numerically...Ch. 12 - Cost of Capital, Net Present Value Leakam Companys...Ch. 12 - I know that its the thing to do, insisted Pamela...Ch. 12 - Newmarge Products Inc. is evaluating a new design...Ch. 12 - Prob. 52PCh. 12 - Prob. 53PCh. 12 - Manny Carson, certified management accountant and...Ch. 12 - Prob. 55CCh. 12 - Prob. 1MTCCh. 12 - NoFat manufactures one product, olestra, and sells...Ch. 12 - Prob. 3MTCCh. 12 - NoFat manufactures one product, olestra, and sells...Ch. 12 - NoFat manufactures one product, olestra, and sells...
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- Using IRR, a project is rejected if the IRR a. is equal to the required rate of return. b. is less than the required rate of return. c. is greater than the cost of capital. d. is greater than the required rate of return. e. produces an NPV equal to zero.arrow_forwardWhich of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must have a higher NPV than 2. e. If a project with normal cash flows has an IRR greater than WACC, the project must have a positive NPV. You purchase a house for $250,000. After you make your down payment of $50,000, you are financing $200,000 for 30 years at an annual percentage rate of 5.4%. How much are your monthly payments? Select one: a. Less than $1,000 b. Between $1,000 and $1,050 c. Between $1,050 and $1,100 d. Between $1,100 and $1,150 e. Greater than $1,200arrow_forwardFor 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 abovearrow_forward
- If a net present value analysis for a normal project gives an NPV greater than zero, an internal rate of return calculation on the same project would yield an internal rate of return ____ the firm's cost of capital.a. greater thanb. less thanc. equal tod. cannot be determined from the information givenarrow_forwardThe relationship between NPV and IRR is such thata. both approaches always provide the same ranking of alternative investment projects.b. the IRR of a project is equal to the firm's cost of capital if the NPV of a project is $0.c. if the NPV of a project is negative, the IRR must be greater than the cost of capital.d. none of the abovearrow_forwardWhen the present value of the cash inflows exceeds the initial cost of a project, then the project should be : Â A. rejected because NPV is negative. B. accepted because NPV is greater than 1. C. accepted because the profitability index is negative. D. rejected because the internal rate of return is negative.arrow_forward
- What is the NPV decision rule for discretionary mutually exclusive projects? A. Accept the project with the highest NPV, even if the NPV is negative. B. If there is sufficient capital, accept all positive-NPV projects. C. Accept the project with the highest IRR. D. Accept the project with the highest NPV, as long as the NPV is positivearrow_forwardIn the unrealistic situion in which the cost of capital were zero, the NPV of the projectarrow_forwardWhich of the following statements is (are) true about project appraisal methods: (i) NPV is the best measure for project appraisal even when capital is rationed. (ii) IRR measures percentage returns of an investment rather than added value. (iii) Contrary to real options, NPV assumes a now or never decision to invest.arrow_forward
- 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?arrow_forwardusing a net present value (NPV) as an investment criterion , a project is acceptable if NPV is:arrow_forwardWhich of the following statement is correct Select one: a. A project is accepted when profitability index will be greater than one b. All statements are correct c. A project is accepted when net present value is greater than zero d. A project is accepted when payback period is less than the other projectarrow_forward
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