When the present value of the cash inflows exceeds the initial cost of a project, then the project should be : A. rejected because NPV is negative. B. accepted because NPV is greater than 1. C. accepted because the profitability index is negative. D. rejected because the internal rate of return is negative.

When the present value of the cash inflows exceeds the initial cost of a project, then the project should be : A. rejected because NPV is negative. B. accepted because NPV is greater than 1. C. accepted because the profitability index is negative. D. rejected because the internal rate of return is negative.

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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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. O A project's regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV), then discounting the TV at the WACC. A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost. O If a project's IRR is smaller than the WACC, then its NPV will be positive. O A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV), then discounting the TV to find the IRR.
Which 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.
PLEASE ANSWER ASAP.....
QUESTION #1: Which of the following is a disadvantage of using the IRR method of capital budgeting over other types: A- IRR does not consider the time and value of money. B- IRR assumes reinvestment of project cash flows at the same rate as the IRR C- IRR ignores the prudent simplicity of paybacks D- None of the above QUESTION #2: The net present value (NPV) of an investment is___________. A- The present value of all benefits (cash inflows) B- The present value of all costs (cash outflows) of the project C- The present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project D- The present value of all benefits (cash outflows) minus the present value of all costs (cash inflows) of the project
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. The lower the WACC used to calculate a project's NPV, the lower the calculated NPV will be. If a project's NPV is less than zero, then its IRR must be less than the WACC. If a project's NPV is greater than zero, then its IRR must be less than zero. The NPV of a relatively low-risk project should be found using a relatively high WACC. A project's NPV is found by compounding the cash inflows at the IRR to find the terminal value (TV), then discounting the TV at the WACC. 000o
If a low cash flow this year makes a low cash flow next year more likely to occur, this means the project cash flows tend to be _____________. a. more predictable b. independent of each other c. more volatile d. Correlated
How can I explain these?
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,…
The internal rate of return is defined as the: OOO rate of return a project will generate if the project is financed solely with internal funds. maximum rate of return a firm expects to earn on a project. discount rate that equates the net cash inflows of a project to zero. discount rate that causes the profitability index for a project to equal zero. discount rate which causes the net present value of a project to equal zero.
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%
When a capital investment is expected to provide unequal annual cash inflows, the payback period cannot be calculated.True or False
1. Why can’t diversification reduce systematic risk? 2. Why are sunk costs excluded when conducting a capital budgeting analysis?

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