Principles of Corporate Finance
13th Edition
ISBN: 9781260465099
Author: BREALEY, Richard
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 5, Problem 18PS
Summary Introduction
To determine: Whether the
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Which of the following statements best explains how NPV can help decision makers?
Group of answer choices
A positive NPV shows that a project is risk free and wealth enhancing.
A negative NPV shows that a project is wealth enhancing
A positive NPV shows that a project is wealth enhancing.
A negative NPV shows that a project is wealth enhancing but of high risk
what does it mean if the NPV and IRR are both positive, should the company invest on the project or not?
Assume we are a world that is not frictionless. Indeed, the real world is such a place. In this world, a firm may have difficulty raising funds to fund a positive NPV project because too much of the project's payoff would go to investors other than the investors from whom you are trying to raise the new money.
Group of answer choices
True
False
Chapter 5 Solutions
Principles of Corporate Finance
Ch. 5 - (IRR) Check the IRRs for project F in Section 5-3.Ch. 5 - (IRR) What is the IRR of a project with the...Ch. 5 - (XIRR) What is the IRR of a project with the...Ch. 5 - Payback a. What is the payback period on each of...Ch. 5 - Payback Consider the following projects: a. If the...Ch. 5 - Prob. 3PSCh. 5 - IRR Write down the equation defining a projects...Ch. 5 - Prob. 5PSCh. 5 - IRR Calculate the IRR (or IRRs) for the following...Ch. 5 - IRR rule You have the chance to participate in a...
Ch. 5 - IRR rule Consider a project with the following...Ch. 5 - IRR rule Consider projects Alpha and Beta: The...Ch. 5 - IRR rule Consider the following two mutually...Ch. 5 - IRR rule Mr. Cyrus Clops, the president of Giant...Ch. 5 - Prob. 12PSCh. 5 - Investment criteria Consider the following two...Ch. 5 - Profitability index Look again at projects D and E...Ch. 5 - Capital rationing Suppose you have the following...Ch. 5 - Prob. 17PSCh. 5 - Prob. 18PS
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- List situations when using the FCFE model to value the equity of a project would not be okarrow_forwardWhich of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV. Provide explanation for the choicearrow_forwardParticipation #6: Why is it desirable to construct capital budgeting rules so that higher-risk projects become less acceptable than lower-risk projects?arrow_forward
- 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.arrow_forwardWhich of the following is not a benefit associated with the NPV technique in capital budgeting? A.The NPV technique considers the time value of money B.The NPV project always selecta projects that maximize shareholder wealth C.The NPV technique considers all cash flow expected to be generated by the project and hence uses all available information D.All these are benefits associated with the NPV techniques E.The NPV technique provides evaluation in percentage format making it easier to interpretarrow_forwardWhich of the following statements is CORRECT? a. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. b. An NPV profile graph shows how a project's payback varies as the cost of capital changes. O c. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. d. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.arrow_forward
- Which of the following theory is applicable to the following situation? A manager needs to raise funds to finance a new project and prefers to use internal financing. Group of answer choices signaling theory trade off theory MM Proposition pecking order theoryarrow_forwardThe best model to analyze the project financially is cash flow. Select one: O True O Falsearrow_forwardWe should accept a project if the Net Present Value is positive and the Internal Rate of Return is higher than the cost of capital. What are the reasons for that, what this means?arrow_forward
- Which of the following statements is correct regarding the payback method? Takes account of differences in size among projects. If a project’s payback is positive, then the project should be accepted because it must have a zero NPV. Ignores cash flows beyond the payback period. Has an objective, market-determined benchmark for making decisions. Directly account for the time value of money.arrow_forwardA. Using AW, determine whether this proposal is acceptable. B. What is the ERR of this proposal? Is it acceptable? C. What is the IRR of this proposal? Is it acceptable? Show the cash flow diagram if necessary and complete solution. Do not use excel please. Thank you.arrow_forwardIn a few sentences, answer the following question as completely as you can. What is the stand-alone principle?Why is it important to the analysis of capital projects?arrow_forward
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