What does a negative net present value (NPV) indicate? a) The project is profitable.b) The project is not viable.c) The project’s return is equal to the discount rate.d) The project has no cash inflows.
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What does a negative net present value (NPV) indicate?
a) The project is profitable.
b) The project is not viable.
c) The project’s return is equal to the discount rate.
d) The project has no cash inflows.
Step by step
Solved in 2 steps
- 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.What are the reinvestment rate assumptions for the NPV and the IRR? A.IRR: Risk Free Rate NPV: WACC B.IRR: The IRR itself NPV: WACC C.The cash flows generated by the project are not assumed to be reinvested. So they will not earn a rate of return. D.IRR: Risk free rate NPV: Risk free Rate E. IRR:WACC NPV: WACCWhich of the following statements is CORRECT? a. If a project with normal cash flows has an IRR greater than the cost of capital, the project must also have a positive NPV. b. If a project with normal cash flows has an IRR less than the cost of capital, the project must have a positive NPV. c. If the NPV is negative, the IRR must also be negative. d. A project's MIRR can never exceed its IRR. e. If Project A's IRR exceeds Project B's, then A must have the higher NPV.
- 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.Disadvantage of the payback method include: Answer choices are below: A) does not consider cash flows past payback period. B) the most common version does not account for time value of money. C) has a bias against long-term projects such as research and development and new product launches. D) all of the above.Which of the following is a disadvantage of the IRR project evaluation method? Question 5Select 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.
- Which of the following statements is true about the internal rate of return? a. It is the interest rate that sets a project's net present value at zero. b. It is the minimal acceptable interest rate on an investment. c. It is the difference between the present value of the cash inflows and outflows associated with a project. d. It is the difference between the present value of a cash outflow and the depreciation associated with an asset.Why the payback method is often considered inferior to discounted cash flow in capital investment appraisal? Select one: a. It is more difficult to calculate b. It does not calculate how long it will take to recoup the money invested c. It only takes into account the future income of a project d. None of the option e. It does not take account of the time value of moneyIf a project with conventional cash flows has an IRR equal to the required return, then: O The profitability index is one. O The IRR must be zero. O The project should be accepted, as the NPV is greater than zero. O The payback period is less than the maximum acceptable period. The NPV is negative.
- Which 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.Which one of the following statements is correct concerning the payback rule? a. The payback period is computed using the present value of each of the cash flows. b. The rule says that you should accept a project if the payback period is greater than 1.0. c. The rule is biased in favour of long-term projects. d. The rule is flawed because it ignores all cash flows after some arbitrary point in time.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.
