Projects A and B are independent. Project A has an IRR of 14.1% and Project B has an IRR of 12.5%. The crossover rate for Projects A and B is 8.5%. The required rate of return for both projects is 11.7% Which one of the following statements is correct? a. Insufficient information, need to know their NPVS. O b. Reject both projects Accept Project A and reject Project B O d. Accept Project B and reject Project A e. Accept both projects

Projects A and B are independent. Project A has an IRR of 14.1% and Project B has an IRR of 12.5%. The crossover rate for Projects A and B is 8.5%. The required rate of return for both projects is 11.7% Which one of the following statements is correct? a. Insufficient information, need to know their NPVS. O b. Reject both projects Accept Project A and reject Project B O d. Accept Project B and reject Project A e. Accept both projects

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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16. Which of the following statements regarding the net present value rule and the rate of return rule is false? A. Accept a project if NPV > cost of investment.B. Accept a project if NPV is positive.C. Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market.D. Reject a project if NPV is negative.
question 15. Three Sisters & Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually beneficial exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? No that no change in value may exists if there is no conflict in decisions, that is choosing same project under both methods. Furthermore, projects could also have been rejected in the very first place. WACC:8.25% Year 0 1 2 3 4 CFS -$1,225 $650 $ 450 $ 250 $50 CFL -$1,315 $100 $300 $500 $700 -$13.21/ -$24.41/$0.00/$24.41/-55.63/$13.21/$60.00
When two mutually exclusive projects are being compared, explain whythe short-term project might be ranked higher under the NPV criterion ifthe cost of capital is high, whereas the long-term project might be deemedbetter if the cost of capital is low. Would changes in the cost of capital evercause a change in the IRR ranking of two such projects? Why or why not?
8. Which of the following statements is CORRECT? Group of answer choices If two projects are mutually exclusive, then they are likely to have multiple IRRs. For a project to have more than one IRR, then both IRRs must be greater than the WACC. If a project is independent, then it cannot have multiple IRRs. Multiple IRRs can only occur if the signs of the cash flows change more than once. If a project has two IRRs, then the smaller one is the one that is most relevant, and it should be accepted and relied upon.
Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. O WACC: CFS CFL O a. $199.41 O b. $0.00 O c. $109.03 O d. $7.51 Oe. $8.32 10.75% 0 -$1,100 -$2,200 1 $375 $725 2 $375 $725 3 $375 $725 st 4 $375 $725
A firm evaluates all of its projects by applying the NPV decision rule. A project under consideration has the following cash flows: Year Cash Flow -$ 41,000 20,000 23,000 14,000 1 What is the NPV of the project if the required return is 11 percent? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) NPV At a required return of 11 percent, should the firm accept this project? O Yes O No
Please no hand writing solution
Which of the following is correct? • the shorter a projects payback period, the less desirable the project is normally considered to be by this criterion • one drawback of the payback criterion is that this method does not take account of cash flows beyond the payback period. • if a projects payback is postitive, then the project should be accepted because it must have a positive NPV • the regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem •one drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback.
When two mutually exclusive projects are being compared, explain why the short-term project might be ranged higher under the NVP criterion if the cost of the capital is high, whereas the long-term project might be deemed better if the cost of capital is low. Would changes in the cost of capital ever cause a change in the IRR ranking of two such projects? Why or why not?
A company is considering two alternative investment projects both of which have a positive net present value. The projects have been ranked on the basis of both net present value (NPV) and internal rate of return (IRR). The result of the ranking is shown below: Project A Project B NPV 1st 2nd IRR 2nd 1st Discuss any four (4) potential reasons why the conflict between the NPV and IRR ranking may have arisen B. Kumi Ltd is considering an investment in a project, which requires immediate payment of GHS15,000, followed by a further investment of GHS5,400 at the end of the first year. The subsequent return phase net cash inflows are expected to arise at the end of the following years: Year 1 2 3 4 5 Cash inflow (GHS) 6,500 7,750 5,750 4,750 3,750 You are required to estimate the internal rate of return of this project assuming the company’s cost of capital of 16%.
None
A situation in which taking one investment prevents the taking of another is(are) called: O Net present value profiling. Operational ambiguity. Mutually exclusive projects. O Issues of scale. O Multiple rates of return.

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