During project evaluation, projected cash flows can change signs from positive to negative and back again. If the signs change more than once, it is best to a. not bother calculating the IRR. b. reject the project. c. not bother calculating the NPV. d. accept the project.
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- Which are problems of the payback criterion? Check all that apply: It ignores cash flows after the cutoff date. It ignores the time value of money. It doesn't show the value created by a project. It doesn't fully reflect the risk of a project. It uses an arbitrary cutoff value. It is difficult to calculate.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.Which of the following would cause a project to have a lower net present value, thereby making the project less appealing? A. The discount rate increases B. The cash flows are extended over a longer period of time. C. The investment cost decreases without affecting the expected income and life of the project. d. The cash flows are accelerated and the project life is correspondingly shortened.
- Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.3. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. Answer One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money. If a project's payback is positive, then the project should be rejected because it must have a negative NPV. The regular payback ignores cash flows beyond the payback pericod, but the discounted payback method overcomes this problem. If a company uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the company will tend to reject projects with relatively short lives and accept long-lived projects, and this will cause its risk to increase over time. The longer a project's payback period, the more desirable the project is normally considered to be by this criterion.4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Green Caterpillar Garden Supplies Inc. is analyzing a project that requires an initial investment of $500,000. The project’s expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 –100,000 Year 3 450,000 Year 4 450,000 Green Caterpillar Garden Supplies Inc.’s WACC is 9%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 22.81% 18.25% 21.67% 20.53%
- What should a manager do with a project that has two internal rates of return (IRRs)? O a. Do the project if the higher of the two IRRs exceeds the cost of capital. O b. Do the project if the lower of the two IRRS exceeds the cost of capital. Oc. Choose the IRR that looks the most reasonable, and do the project if this chosen IRR is greater than the cost of capital. Od. Abandon the project, as it involves unconventional cash flows. O e. Do the project if the net present value of the project is greater than zero.Using IRR, a project is rejected if the IRR a. is equal to the required rate of return. b. is less than the required rate of return. c. is greater than the cost of capital. d. is greater than the required rate of return. e. produces an NPV equal to zero.Which of the following is not a recommended solution if the comparison of projected cash flows with goals identifies a shortfall? a. Find additional income. b. Utilize the emergency fund. c. Cut back costs. d. Change goals. e. All of the above are recommended solutions.
- 4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $3,000,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Celestial Crane Cosmetics's WACC is 7%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): O-20.94% O 17.35% Cash Flow $275,000 -125,000 400,000 450,000 O 19.00% O 15.69%The payback criterion has problem(s) like Select one: O A. It considers the time value of money O B. It ignores the cash outflows or inflows after the payback period and the time value of money O C. It considers the inflows and outflows after the Payback Period O D. It considers all the cash outflows or inflows of the projectWhich of the following is a disadvantage of the IRR project evaluation method? Select one: a. It does not take into account the time value of money. b. If there are negative cash flows after positive cash flows, there may be zero or multiple internal rates of return. c. It does not make adequate allowance for risk. d. It focuses on accounting profit rather than cash flow as the source of value.
