A firm has a project with the following cash flows:YearCash Flow0$30,0001-6,0002-9,000348,000 The required rate of return is 6%. Which of the following statement on decision rules is incorrect? A.IRR decision rule can be safely used to evaluate the project. B.NPV decision rule can be safely used to evaluate the project. C.Modified IRR decision rule can be safely used to evaluate the project. D.Profitability index decision rule can be safely used to evaluate the project.

We can evaluate a project using various tools of capital budgeting like NPV, IRR, payback,…

Answered: The required rate of return is 6%.…

Business

Finance

The required rate of return is 6%. Which of the following statement on decision rules is incorrect?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter11: Capital Budgeting And Risk

Section: Chapter Questions

Problem 12P

See similar textbooks

Similar questions

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%
Use trial and error.
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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $2,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $325,000 Year 2 –100,000 Year 3 475,000 Year 4 475,000 Q1. Grey Fox Aviation Company’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): 33.79% 29.18% -11.55% 27.65% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they should Q2. ______ this…
For a typical project evaluation with initial investment at time=0 and positive cash flows afterwards, each statement in the following shows possible answers in parenthesis. Choose the answer that shows correct answers for all statements. Statement 1: When NPV = 0, investors earn (negative/zero/positive) return. Statement 2: Accept the project when valuation is (higher/the same/lower) than the cost. Statement 3: When IRR> cost of capital, NPV is (negative/zero/positive). Statement 4: Cost of capital is determined by the (company/investors) considering the (business risk/systematic) risk) a. negative, higher, positive, investors and systematic b. positive, lower, positive, investors and business c. positive, higher, zero, company and systematic d. positive, higher, positive, investors and systematic
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 $2,225,000. The project’s expected cash flows are: Year Cash Flow Year 1 $350,000 Year 2 –125,000 Year 3 450,000 Year 4 450,000 Green Caterpillar Garden Supplies Inc.’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): -12.63% 26.46% 30.64% 29.24% If Green Caterpillar Garden Supplies Inc.’s managers select projects based on the MIRR criterion,…
Hello please help me sir with these parts correct
Computer Consultants Inc. is considering a project that has the following cash flow and cost of capital (r) data. What is the project's MIRR? Note that a project's MIRR can be less than the cost of capital (and even negative), in which case it will be rejected. Year Cash flows r=7.50% a. 13.84% b. 14.57% c. 14.20% d. 13.28% e. 15.12% 0 -$1,000 1 $450 2 $450 3 $450
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%
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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $3,225,000. The project's expected cash flows are: Year Cash Flow Year 1 Year 2 Year 3 Year 4 Grey Fox Aviation Company's WACC is 8%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR): 16.25% 13.69% $325,000 -150,000 450,000 475,000 14.54% -20.05% If Grey Fox Aviation Company's managers select projects based on the MIRR criterion, they should Which of the following statements about the relationship between the IRR and the MIRR is…
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: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $450,000. The project’s expected cash flows are: Year Cash Flow Year 1 $300,000 Year 2 –175,000 Year 3 475,000 Year 4 450,000 Grey Fox Aviation Company’s WACC is 10%, and the project has the same risk as the firm’s average project. Calculate this project’s modified internal rate of return (MIRR): 26.73% 27.89% 20.92% 23.24% If Grey Fox Aviation Company’s managers select projects based on the MIRR criterion, they shouldreject this independent…
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: Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment of $600,000. The project's expected cash flows are: Year Year 1 Year 2 Year 3 Year 4 Cold Goose Metal Works Inc.'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): 17.50% 14.00% Cash Flow $350,000 -100,000 450,000 400,000 19.25%
solve these 2 pratice problems

SEE MORE QUESTIONS

Recommended textbooks for you

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

EBK CONTEMPORARY FINANCIAL MANAGEMENT

Finance

ISBN:

9781337514835

Author:

MOYER

Publisher:

CENGAGE LEARNING - CONSIGNMENT

Corporate Fin Focused Approach

Finance

ISBN:

9781285660516

Author:

EHRHARDT

Publisher:

Cengage

Principles of Accounting Volume 2

Accounting

ISBN:

9781947172609

Author:

OpenStax

Publisher:

OpenStax College

Intermediate Financial Management (MindTap Course…

Finance

ISBN:

9781337395083

Author:

Eugene F. Brigham, Phillip R. Daves

Publisher:

Cengage Learning

SEE MORE TEXTBOOKS

GET THE APP

About FAQ Academic Integrity Sitemap Document Sitemap

Contact Bartleby Contact Research (Essays)High School Textbooks Literature Guides Concept Explainers by Subject Essay Help Mobile App

GET THE APP

Privacy

Your CA Privacy Rights

Your NV Privacy Rights

About Ads

Manage My Data

bartleby, a Learneo, Inc. business

	A.	IRR decision rule can be safely used to evaluate the project.
	B.	NPV decision rule can be safely used to evaluate the project.
	C.	Modified IRR decision rule can be safely used to evaluate the project.
	D.	Profitability index decision rule can be safely used to evaluate the project.

Year	Cash Flow
0	$30,000
1	-6,000
2	-9,000
3	48,000