A firm is considering what has been estimated to be a positive NPV project (NPV > 0). What can you say or infer about the project's payback period, discounted payback method, IRR, profitability index, and accounting rate of return (Please be thorough)?

A firm is considering what has been estimated to be a positive NPV project (NPV > 0). What can you say or infer about the project's payback period, discounted payback method, IRR, profitability index, and accounting rate of return (Please be thorough)?

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter14: Investing In Stocks And Bonds

Section: Chapter Questions

Problem 8LTAI

See similar textbooks

Related questions

Q: Can I calculate the Rate of Return using the NPV/initial investment? Why or why not?

A: When an investment is made in a certain project, its future outcomes are measured based on the money…

Q: How can we use the internal rate of return to evaluate whether we should pursue a specific project?…

A: It is important for the investors to evaluate the project in all aspects before making any…

Q: which of the following statement is true>? 1. return on equity is the ratio of total assets to…

A: Capital budgeting is a way to evaluate profitability of new projects or investment by using various…

Q: (a) Compute the profitability index for each project. (b) Based on the profitability index, which…

A: It's a method of capital Budgeting. It helps us to know whether a project must be accepted or…

Q: nternal rate of return For the project shown in the following table, calculate the internal rate…

A: IRR is rate at which net present value of the cash flows will be equal to 0 it is calculated using…

Q: Consider the relationship between a project’s net present value (NPV), its internal rate of return…

Q: We should accept a project if the Net Present Value is positive and the Internal Rate of Return is…

A: Net present value is referred as the difference between the cash inflow's present value and also…

Q: You are considering the following projects but have limited funds to invest and can't take them all.…

A: Profitability index: It is the ratio of present value of cash inflows and present value of out…

Q: Assume that the firm has established a single interest rate for project evaLuation. considering all…

A: Firms always analyze the projects to check their viability because they are going to spend a huge…

Q: You are analyzing a project and have prepared the following data: a. Based on the net present…

A: IRR is the rate at which NPV is zero.

Q: The internal rate of return (IRR) on a project is the average annual rate of return provided by…

A: The internal rate of return also known as IRR is a key tool in evaluating projects and is vital for…

Q: The best model to analyze the project financially is cash flow. Select one: O True O False

A: To evaluate a project for its acceptability, we need to analyze its profit generating ability.…

Q: The firm should accept a project if: the profitability index is greater than or equal to 1. the…

A: Capital budgeting is the process of evaluating the proposed projects and investments so that the…

Q: Discuss the payback period, NPV (net present value), and IRR (internal rate of return) methods for…

A: Capital budgeting is the process of comparing the project's return to the needed return. It aids in…

Q: If the net present value of a project is positive, the project earns a return that is Group of…

A: Introduction: According to the net present value rule, executives and shareholders must only invest…

Q: Explain why the NPV is a more accurate measure than IRR when evaluating the financial profitability…

A: Net Present Value (NPV) and Internal Rate of Return (IRR) are two popular methods used in financial…

Q: Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's…

A: NPV discount firm's cash flow at firm's cost of capital. NPV profile graph shows relation…

Q: Which of the following statements is CORRECT? O a. The NPV profile graph for a normal project will…

A: The net present value method is an important technique of capital budgeting and the time value of…

Q: The Basics of Capital Budgeting: Evaluating Cash Flows: NPV The net present value (NPV) method…

A: It represents the investment's profitability in absolute terms and is computed by reducing the…

Q: Could you show how to find the internal rate of return IRR using excel and the payback period for…

A: IRR represents the rate of return that makes the project's net present value equivalent to zero.

Q: Which provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR?…

A: Internal rate of return (IRR): The internal rate of return (IRR) is a measure utilized in capital…

Q: -4- Question 3 A company is considering 2 alternative investment proposals. The first proposal calls…

A: Since you have posted a question with multiple sub-parts, we will solve the first three sub-parts…

Q: Calculate the Internal Rate of Return for the project. b. If you were the financial manager, would…

A: The internal rate of return can be calculated as follows : Calculations for above :

Q: Consider the following sets of investment projects: (a) Classify each project as either simple or…

A: Step 1: A project is a simple project when the type of cash flow does not change in the…

Q: Below is the information on a project that you are evaluating for deciding on its worthiness as an…

A: Growth rate of sales is 6% Growth rate of operating cost is 5% To Find: IRR

Q: AllCity Inc. is financed 40% with debt, 15% with preferred stock, and 45% with common stock Its…

A: The approach of proportionally weighting each category of capital is known as the weighted average…

Q: Why are NPV, BCR, and IRR considered SUPERIOR indicators of Project Feasibility compared to Payback…

A: The process that analyzes and evaluates an investment/project's feasibility and profitability is…

Q: n 0 1 2 3 4 56 78 8 9 10 A -$250 $60 $970 B -$200 $90 $90 $60 $60 Net Cashflow C -$70 $20 $10 $5…

A: IRR is a method of capital budgeting technique. It is a rate by which one analyzes the profitability…

Q: Examine the following statements. (i) Payback period method measure the true profitability of a…

A: Time value of money is a concept that helps in determining the value of future cash flows…

Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

Definition Definition Percentage gain or loss from a specific investment over time. The rate of return is the difference between the closing and initial values of an investment divided by the initial value of the investment. The closing value includes any intermediate cash flows such as dividends or interest amounts.

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

is this accurate
Which provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR? Explain.
n 0 1 2 3 4 5 6 7 8 9 10 A -$250 $60 $970 B -$200 $90 $90 $60 $60 Net Cashflow с -$70 $20 $10 $5 -$50 $60 $50 $40 $30 $20 $10 D -$300 $270 $250 -$129 -$20 $120 $40 E -$90 -$100 -$50 $0 $150 $150 $100 $100
which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate. 3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money
Consider the relationship between a project’s net present value (NPV), its internal rate of return (IRR), and a company’s cost of capital. For each scenario that follows, indicate the relative value of the unknown. If cost of capital is unknown, indicate whether it would be higher or lower than the stated IRR. If NPV is unknown, indicate whether it would be higher or lower than zero. Project 1 is shown as an example.
If the net present value of a project is positive, the project earns a return that is Group of answer choices - equal to the required rate or return - greater than the required rate of return - equal to the accounting rate of return - greater than the accounting rate of return
We 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?
Internal rate of return For the project shown in the following table, calculate the internal rate of return (IRR). Then indicate, for the project, the maximum cost of capital that the firm could have and still find the IRR acceptable.
Why are NPV, BCR, and IRR considered SUPERIOR indicators of Project Feasibility compared to Payback or Recoupment Period and Accounting Rates of Return? Explain briefly.
Explain why the NPV is a more accurate measure than IRR when evaluating the financial profitability of a project.
Assume that the firm has established a single interest rate for project evaLuation. considering all relevant risks inherent in the project, how will we use this rate to measure the project's worth?
Help pls