which of the following statements related to the IRR is correct IRR is equal to the reuquired return when NPV = 0. The IRR yields the same accept and reject decisions as the NPV method given mutually exclusive projects Financing type projects should be accepted if the IRR exceeds the required return A project with an IRR equal to the required return would reduce the value of a firm if accepted. The average accounting return is a better method of analysis than the IRR from a financial opint of view
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IRR is the discount rate that makes the Net Present Value (NPV) of a project equal to zero. Show more…
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Which of the following statements is correct? When evaluating mutually exclusive projects, the modified IRR (MIRR) always leads to the same capital budgeting decisions as the NPV method, regardless of the relative lives or sizes of the projects being evaluated. Other things held constant, an increase in the cost of capital will result in a decrease in a project's IRR. The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared. The NPV and IRR methods, when used to evaluate two independent projects, will lead to the same accept/reject decisions regardless of the cost of capital rate. All of them are incorrect.
Adi S.
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
The internal rate of return is most reliable when evaluating: - a single project with cash outflows at time 0 and the final year and inflows in all other time periods. - a single project with only cash inflows following the initial cash outflow. - mutually exclusive projects of differing sizes. - mutually exclusive projects with different time horizons. - a single project with alternating cash inflows and outflows over several years. When projects are mutually exclusive and there is no constraint on capital to invest, selection should be made according to the project with the: - highest NPV. - highest IRR. - shortest payback period. - highest profitability index. - all of the above. Use of a profitability index to evaluate mutually exclusive projects in the absence of capital rationing: - will provide the same project rankings as an NPV criterion. - will provide the same project rankings as the payback period. - will provide the same project rankings as the return on invested capital. - can result in misguided project selections. - can result in proper project selections if used in conjunction with the IRR rule. The return on invested capital most directly measures the project's impact on which one of the following: - the hurdle rate. - the internal rate of return. - free cash flow. - capital structure. - earnings. Teldar Paper has up to $60 million that it can invest in the following projects: Project Initial Investment Required (In $Million) Present Value of Future Cash Flows (In $Million) A 18 27 B 12 18 C 8 12 D 8 10 E 10 11 F 40 80 G 4 5 Which projects should Teldar undertake? - A and F - A, B, C, D, and G - B, C, and F - D, E, and F - none of the above
Akash M.
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