Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
4th Edition
ISBN: 9780134083278
Author: Jonathan Berk, Peter DeMarzo
Publisher: PEARSON
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Chapter 22.5, Problem 1CC
Summary Introduction

To discuss: The reason why a higher net present value (NPV) project cannot be picked up when comparing the mutually exclusive investment opportunities.

Introduction:

Investment refers to the act of purchasing the financial assets with the expectation of a rise in the value of the asset.

The variation between the present value of the cash outflows and the present value of the cash inflows are known as the net present value. In capital budgeting, the net present value is utilized to analyze the profitability of a project or investment.

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Students have asked these similar questions
Why NPV is generally preferred over IRR when choosing among competing or mutually exclusive projects. Why would managers continue to use IRR to choose among mutually exclusive projects?
When two mutually exclusive projects are being compared, explain why the short-term project might be ranged higher under the NVP criterion if the cost of the capital is high, whereas the long-term project might be deemed better if the cost of capital is low. Would changes in the cost of capital ever cause a change in the IRR ranking of two such projects? Why or why not?
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?

Chapter 22 Solutions

Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book

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