Foalsa Ltd have been conducting investment appraisal on two potential new projects the company is looking at undertaking. The management accountant is new to the business and has followed a template calculation for the NPV and IRR that was set up by the previous management accountant for a past project. Having completed the calculations, the management accountant discovered the cost of capital figure the business uses has changed since the template was constructed and is in fact 2% higher. What will be the effect of correcting this error on the NPV and IRR figures? Impact on NPV Impact on IRR A Increase NPV IRR unchanged Decrease NPV IRR unchanged C NPV unchanged Decrease IRR Decrease NPV Increase IRR

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
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Foalsa Ltd have been conducting investment appraisal on two potential new projects the company is looking at undertaking. The management accountant is new to the business and has followed a template calculation for the NPV and IRR that was set up by the previous management accountant for a past project. Having completed the calculations, the management accountant discovered the cost of capital figure the business uses has changed since the template was constructed and is in fact 2% higher.  What will be the effect of correcting this error on the NPV and IRR figures?   Impact on NPV Impact on IRR A Increase NPV IRR unchanged B Decrease NPV IRR unchanged C NPV unchanged Decrease IRR D Decrease NPV Increase IRR
Foalsa Ltd have been conducting investment appraisal on two potential new projects
the company is looking at undertaking. The management accountant is new to the
business and has followed a template calculation for the NPV and IRR that was set
up by the previous management accountant for a past project.
Having completed the calculations, the management accountant discovered the cost
of capital figure the business uses has changed since the template was constructed
and is in fact 2% higher.
What will be the effect of correcting this error on the NPV and IRR figures?
Impact on NPV
Impact on IRR
Increase NPV
IRR unchanged
Decrease NPV
IRR unchanged
NPV unchanged
Decrease IRR
Decrease NPV
Increase IRR
B
Transcribed Image Text:Foalsa Ltd have been conducting investment appraisal on two potential new projects the company is looking at undertaking. The management accountant is new to the business and has followed a template calculation for the NPV and IRR that was set up by the previous management accountant for a past project. Having completed the calculations, the management accountant discovered the cost of capital figure the business uses has changed since the template was constructed and is in fact 2% higher. What will be the effect of correcting this error on the NPV and IRR figures? Impact on NPV Impact on IRR Increase NPV IRR unchanged Decrease NPV IRR unchanged NPV unchanged Decrease IRR Decrease NPV Increase IRR B
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