Question 1

Which of the following statements is CORRECT?

Accepted Answer

A) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. 
B) For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods. 
C) Multiple IRRs can exist, but not multiple MIRRs.This is one reason some people favor the MIRR over the regular IRR. 
D) If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years. 
E) The percentage difference between the MIRR and the IRR is equal to the project's WACC. 
A) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects. 
B) For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods. 
C) Multiple IRRs can exist, but not multiple MIRRs.This is one reason some people favor the MIRR over the regular IRR. 
D) If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years. 
E) The percentage difference between the MIRR and the IRR is equal to the project's WACC.

Question 2

Malholtra Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.

Accepted Answer

A) 14.08% 
B) 15.65% 
C) 17.21% 
D) 18.94% 
E) 20.83% 
A) 14.08% 
B) 15.65% 
C) 17.21% 
D) 18.94% 
E) 20.83%

Question 3

basic rule in capital budgeting is that If a project's NPV exceeds its IRR, then the project should be accepted.

Accepted Answer

A) True 
 B)False

Question 4

conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross.

Accepted Answer

A) True 
 B)False

Question 5

company is choosing between two projects.The larger project has an initial cost of $100,000, annual cash flows of $30,000 for 5 years, and an IRR of 15.24%.The smaller project has an initial cost of $50,000, annual cash flows of $16,000 for 5 years, and an IRR of 16.63%.The projects are equally risky.Which of the following statements is CORRECT?

Accepted Answer

A) Since the smaller project has the higher IRR, the two projects' NPV profiles cannot cross, and the smaller project's NPV will be higher at all positive values of WACC. 
B) Since the smaller project has the higher IRR, the two projects' NPV profiles will cross, and the larger project will look better based on the NPV at all positive values of WACC. 
C) If the company uses the NPV method, it will tend to favor smaller, shorter-term projects over larger, longer-term projects, regardless of how high or low the WACC is. 
D) Since the smaller project has the higher IRR but the larger project has the higher NPV at a zero discount rate, the two projects' NPV profiles will cross, and the larger project will have the higher NPV if the WACC is less than the crossover rate. 
E) Since the smaller project has the higher IRR and the larger NPV at a zero discount rate, the two projects' NPV profiles will cross, and the smaller project will look better if the WACC is less than the crossover rate. 
A) Since the smaller project has the higher IRR, the two projects' NPV profiles cannot cross, and the smaller project's NPV will be higher at all positive values of WACC. 
B) Since the smaller project has the higher IRR, the two projects' NPV profiles will cross, and the larger project will look better based on the NPV at all positive values of WACC. 
C) If the company uses the NPV method, it will tend to favor smaller, shorter-term projects over larger, longer-term projects, regardless of how high or low the WACC is. 
D) Since the smaller project has the higher IRR but the larger project has the higher NPV at a zero discount rate, the two projects' NPV profiles will cross, and the larger project will have the higher NPV if the WACC is less than the crossover rate. 
E) Since the smaller project has the higher IRR and the larger NPV at a zero discount rate, the two projects' NPV profiles will cross, and the smaller project will look better if the WACC is less than the crossover rate.

Question 6

Maxwell Feed & Seed is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected.

Accepted Answer

A) 2.08% 
B) 2.31% 
C) 2.57% 
D) 2.82% 
E) 3.10% 
A) 2.08% 
B) 2.31% 
C) 2.57% 
D) 2.82% 
E) 3.10%

Question 7

Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.

Accepted Answer

A) If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative. 
B) If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative. 
C) If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero. 
D) There is no necessary relationship between a project's IRR, its WACC, and its NPV. 
E) When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high. 
A) If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative. 
B) If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative. 
C) If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero. 
D) There is no necessary relationship between a project's IRR, its WACC, and its NPV. 
E) When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high.

Which of the following statements is CORRECT?

Malholtra Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.

basic rule in capital budgeting is that If a project's NPV exceeds its IRR, then the project should be accepted.

conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross.

Maxwell Feed & Seed is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected.

Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.

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Exam 10: Capital Budgeting

Which of the following statements is CORRECT?

Malholtra Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.

basic rule in capital budgeting is that If a project's NPV exceeds its IRR, then the project should be accepted.

conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross.

Maxwell Feed & Seed is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected.

Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.

Overview

Statements, CF, Taxes

Financial Analysis

Time Value of Money

Bonds

Risk and Return

Stocks

Financial Options

Cost of Capital

Cash Flow and Risk

Forecasting

Valuation, Governanc

Dividends

CAP Structure

Working Capital

Multinational

Filters