A manager will prefer the internal rate of return (IRR) rule over the net present value (NPV) rule if the manager ________. A prefers to talk in terms of rates of return B can accurately forecast future cash flows C dislikes the payback analysis D is considering mutually exclusive projects
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It is the discount rate that makes the net present value (NPV) of all cash flows from a project equal to zero. Show more…
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Consider the following two mutually exclusive projects: The required return is 15 percent for both projects. Which one of the following statements related to these projects is correct? Answer a. Because both the IRR and the PI imply accepting Project B, that project should be accepted. b. The profitability rule implies accepting Project A. c. The IRR decision rule should be used as the basis for selecting the project in this situation. d. Only NPV implies accepting Project A. e. NPV, IRR, and PI all imply accepting Project A. Year 0 1 2 3 4 Cash Flow (A) -$318,844 27,700 56,000 55,000 399,000 Cash Flow (B) -$27,476 9,057 10,536 11,849 13,814
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When comparing two mutually exclusive projects, which ONE of the following would be a valid criteria to use to choose one project over the other? a. The project with a lower modified internal rate of return is preferred. b. The project with a lower net present value with infinitely replicated cash flows is preferred. c. The project with a lower internal rate of return is preferred. d. The project with a lower payback period is preferred. e. The project with a lower profitability index is preferred.
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