Which of the following is a disadvantage of the internal rate of return (IRR) rule? Multiple choice question. It always leads to a decision that conflicts with the decision of the NPV method. It results in multiple answers for conventional cash flows. It may lead to incorrect decisions when comparing mutually exclusive investments. It needs more input data than the NPV method.

Which of the following is a disadvantage of the internal rate of return (IRR) rule? Multiple choice question. It always leads to a decision that conflicts with the decision of the NPV method. It results in multiple answers for conventional cash flows. It may lead to incorrect decisions when comparing mutually exclusive investments. It needs more input data than the NPV method.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter14: Capital Structure Management In Practice

Section14.A: Breakeven Analysis

Problem 2QTD

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Which of the following are disadvantages of the average accounting return (AAR)? More than one answer may be correct. Multiple select question. It ignores the time value of money. It uses an arbitrary benchmark cutoff rate. Its input data is not easily available. It is based on cash flows and market value.
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.
This can occur when a selection among mutually exclusive alternatives is based wrongly on maximization of IRR on the total cash flow. O a. Investment errors O b. Ranking errors Ос. Incremental errors Od. Alternative errors
Which of the following is a disadvantage of the discounted payback period method? Multiple choice question. It ignores cash flows beyond the cutoff date. It may accept negative estimated NPV investments. It is unbiased toward liquidity. It does not include the time value of money.
The profitability index is most useful When the NPV method and the IRR method give conflicting signals. When capital needs to be rationed. When the cash flow pattern is unusual. None of the above.
Which of the following is an advantage of the internal rate of return (IRR) rule? Multiple choice question. It is easy to understand and communicate. It can be applied to projects with non-conventional cash flows. It always gives multiple IRRs for non-conventional cash flows. It needs less input data than the NPV method.
Which of the following is not an approach to replacement analysis? Solve, a. Cash flow approach b. Insider viewpoint c. Outsider viewpoint d. Supply chain approach.
Technical problems associated with the internal rate of return include: a. the possibility of multiple IRRs, which rarely present practical difficulties b. the assumption that all cash flows are reinvested at the IRR c. neither of the above d. both of the above
What theorem is this a plain-language interpretation of? "Leaving an investment that loses money on average can't turn it into an investment that ever makes money on average, but it can make it lose less money on average." A. Stopwatch lemma B. Feynman-Kac C. Fundamental theorem of investment D. Process reduction E. Martingale replication F. Optional Sampling G. None of the other responses.
Relative valuation has several disadvantages. Which of the following is NOT? a. There is the potential to provide inconsistent estimates arising from using different price ratios. b.Relative valuation is affected by the market mood such as when the comps is overvalued, the resulting valuation of the object will be a lower estimate. c. When applying relative valuation, the analyst may remove nonrecurrring income and loss items such as loss from sale of a cash-generating unit; this will improve the valuation process at the expense of time required.d.When biased stock brokers prepare relative valuation reports, it is likely that they will choose a price ratio that will encourage investors to buy stocks.
Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator.B. The quick ratio eliminates prepaid expenses for the numerator.C. The quick ratio eliminates inventories from the numerator.D. The quick ratio considers only cash and marketable investments as current assets.E. The quick ratio eliminates revenue from the numerator.
Which of the following is a disadvantage of the internal rate of return criterion? Select one: a. It is not a true rate of return. b. It uses an arbitrary benchmark cutoff rate. c. It ignores time value of money, cash flows, and market values. d. It cannot be used to rank independent projects. e. It may lead to incorrect decisions when comparing mutually exclusive investments.