Title: Understanding Project Evaluation: IRR, WACC, and NPV---**Question: Which of the following statements is CORRECT?** Assume that all projects being considered have normal cash flows and are equally risky.- ○ If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative.- ○ If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero.- ○ There is no necessary relationship between a project's IRR, its WACC, and its NPV.- ○ When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high.- ○ If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.**Explanation:**This multiple-choice question focuses on the relationships between a project's Internal Rate of Return (IRR), Weighted Average Cost of Capital (WACC), and Net Present Value (NPV). For professionals and students in finance, understanding these concepts is key to making informed project evaluation and investment decisions.

It refers to the rate of return that is computed by the company to make a decision of selection of a project for investment. This rate provides the basis for selection of projects with a lower cost of capital and rejection of project with a higher cost of capital.The Internal Rate of Return (IRR) is defined as the rate at which the total present value of the cash inflows is equivalent to the total present value of cash outflows. This states that the net present value (NPV) will be at zero if the WACC is equivalent to the IRR.If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero.

Answered: ? Assume that all projects being…

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? Assume that all projects being considered have normal cash flows and are equally risky. oll ronnool oonditionn tho sicat's IRR muust b ntiuo

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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22)
How does the efficient frontier change if we add the risk free asset into theportfolio of risky assets? Explain both the cases when borrowing at the riskfree is allowed and when it is not. Support your explanations with a graph.
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When the underlying riskiness of free cash flows (FCF) decreases, the value of the project O increases stays the same decreases
be appropriate? Explain. 8.4 Average Accounting Return Concerning AAR: LO 2 Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the AAR criterion decision rule? a. b. What are the problems associated with using the AAR as a means of evaluating a project's cash flows? What underlying feature of AAR is most troubling to you from a financial perspective? Does the AAR have any redeeming qualities?
Certainty Equivalent Cash flow (CEQ) is obtained through converting the expected cash flows by a ______ shift of risk. If we discount the CEQ by the time value of money, we will have the present value _______ discounting future cash flow by time and risk discounting factor. Therefore, CEQ is always ______ than the expected cash flow. Find the correct choice to fill the blanks. A. time varying, same as, lowerB. constant, same as, lower C. time varying, higher than, lowerD. constant, same as, higher
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2. Consider the model of Moral Hazard where firms choose between investing one unit of output in a less risky or more risky project. The safer project yields with probability and zero otherwise while the risky project yields 2 with probability and zero otherwise i.e. TG = G = TB B = 2. Suppose firms finance their investment by borrowing 1 unit from a the fiinancial market at interest rate R. The financial market is risk neutral and requires an expected rate of return equal to the risk free rate which is assumed to be zero. Will there be an equilibrium with lending to firms from the financial market A. Yes B. No C. Not enough information D. None of A-C
5a5) The issue of forecasting risk stresses the point that the correctness of any decision to accept/reject a project highly depends upon the: A. method of analysis used to make the decision.B. initial cash outflow.C. ability to recoup any investment in net working capital.D. accuracy of the projected cash flows.
Anwer quickly please. A project having the conventional pattern of cash flows exhibits all the following EXCEPT: a. Terminal cash flow b. Initial investment c. Operating cash inflows d. Operating cash outflows
19. All else being equal, a company would choose to invest in a capital asset if which of the following is true?⦁ If the payback period equals the amount invested⦁ If the expected accounting rate of return is less than the required rate of return⦁ If the expected accounting rate of return is greater than the required rate of return⦁ If the average amount invested is equal to the net cash inflows

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