Evaluating the mutually exclusive projects using the IRR and NPV approaches can be problematic'. Discuss this statement with examples

Q: Why do you think CFOs tend to look at strategic concerns before they look at the NPV of a project?…

A: Net present value (NPV) is used by analysts and investors to evaluate the profitability of a project…

Q: Answer this question as it is pertaining to two MUTUALLY EXCLUSIVE projects on the following figure.…

A: From the given graph of NPV vs required rate, we can see that at the required rate of 8% both A and…

Q: Why the limitation of portfilio analysis is itsuggests the use of standard strategies that can miss…

A: A portfolio is a collection of various investments. Portfolios are a vital part of a corporation…

Q: When faced with a set of independent projects, one should select (choose the best answer) A. all…

A: Solution: 'When faced with a set of independent projects, one should select "all projects with a…

Q: Answer this question as it is pertaining to two MUTUALLY EXCLUSIVE projects on the following figure.…

A: IRR internal rate of return is where net present value is zero.

Q: Replacement projects are a subcategory of the mutually exclusive projects. True or false?

A: Replacement project:  A replacement project is an undertaking in which the corporation rejects a…

Q: Stakeholder involvement is very crucial in the EIA. Then What challenges will the project face if…

A: EIA (Environmental Impact Assessment) is referred as the process or procedure for evaluation of an…

Q: When faced with a set of independent projects, one should select (choose the best answer) O all…

A: NPV: Net present value is a method to find out a project or investments current value by…

Q: When evaluating a project, the best metrics to use are:   options:   NPV and payback period…

A: Net present value or NPV is a method used to determine the present value of all the future cash flow…

Q: When faced with a set of independent projects, one should select (choose the best answer) Group of…

A: There really are two categories of capital investment projects: independent projects which do not…

Q: When evaluating projects by the present worth method, how do you know which one(s) to select if the…

A:

Q: A project with a negative NPV should be rejected. O True O False

A: Net present value  = present value of future cash inflows discounted at desired rate of return -…

Q: Explain in details the differences between the two typical analyses - Sensitivyty Analysis and…

A: Both Methods, Sensitivity Analysis and Scenario Analysis help in decision making.

Q: When faced with a set of independent projects, one should select (choose the best answer) A. all…

A: The net present value (NPV) approach calculates the current worth of all future cash flows generated…

Q: How will you choose between two mutually exclusive projects which do differs in terms of their…

A: An investment appraisal is a capital budgeting technique that helps to analyze a proposed project's…

Q: In dealing with IRR and NPV project evaluations, there is something called a crossover rate. What is…

A: The question is related to crossover rate of return i.e cost of capital at which the Net Present…

Q: Explain the term Flaws in Project Ranking by IRR?

A: Answer: IRR is nothing but an internal rate of return; it is the rate of discount which makes a…

Q: What are some differences in the analysis for a replacement project versus that for a new expansion…

A: Capital budgeting is a process of evaluating a potential investment. Various factors such as initial…

Q: When faced with a set of independent projects, one should select (choose the best answer) O all…

A: When accepting individual projects, Project with  Positive NPV or IRR greater than hurdle rate or…

Q: Explain why NPV is generally preferred over IRR when choosing among competing or mutually exclusive…

A: When using the net present value method of selecting from various investment projects: the cash…

Q: Provide an example of a “good” externality—that is, one thatincreases a project’s true NPV over what…

A: The net present value (NPV) method is a method to ascertain the profitability of an investment in a…

Q: How can we use the AE Method to Compare Mutually Exclusive Alternatives?

A: The AE method is used to compare mutually exclusive alternative as explained below,

Q: Which of the following is not a criterion that is used to determine whether a project is acceptable…

A: A project is accepted when NPV is greater than or equal to zero. If NPV is Negative then the project…

Q: Even when NPV and IRR give the same​ accept/reject decisions, they may not give the same…

A: Answer: The correct answer is TRUE.

Q: Consider the following cash flows for two mutually exclusive capital investment projects. The…

A: Net Present Value (NPV) is the excess of present value of cash inflows over present value of cash…

Q: How can we generalize the decision rule for comparing mutually exclusive projects?

A: A company can only select only one project from various projects because it requires huge capital…

Q: What two conditions can lead to conflicts between the NPV and the IRR when evaluatingmutually…

A: NPV : NPV or net present value is defined as the difference between present value of cash inflows…

Q: Describe the Investment Decision for a Nonsimple Project?

A: Answer: In case of simple investment, changes to the cash flow sign can only be made once. For…

Q: A situation in which taking one investment prevents the taking of another is(are) called: O Net…

A: In capital budgeting decisions, there are three types investment decision of projects (a) dependent…

Q: Do NPV and IRR always yield the same conclusion (accept or reject a project)? If not, when do they…

A: Net Present Value is the difference between present value of cash inflows and present value of cash…

Q: Which project below would you consider acceptable? One whose IRR is greater than the MARR One whose…

A: Solution: Internal Rate of Return (IRR) is the rate of return which the project yields ie. the…

Q: Why might recognizing the existence of a real option raise, but not lower, a project’sNPV as found…

A: Real Options are rights which enable the  management to take  decisions  regarding business…

Q: When faced with a set of independent projects, one should select (choose the best answer) O all…

A: When there are set of projects, selection of a project will be based on any of the following options…

Q: Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one…

A: NPV and IRR are the capital budgeting techniques which are used to evaluate an investment proposal.…

Q: What two characteristics can lead to conflicts between the NPV andthe IRR when evaluating mutually…

A: 1.When two projects are of different size and investment, NPV and IRR can throw up different…

Q: Consider IRR for a Nonsimple Project: Mixed Investment?

A: Answer: Mixed investment is an investment during the investment period in which a company borrows…

Q: When faced with a set of independent projects, one should select (choose the best answer) all…

A: Positive NPV occurs only when the present value of all inflows is greater than the present value of…

Q: Why do we need to use the incremental analysis when comparing mutually exclusive projects?

A: Mutually exclusive projects are the projects which compete with each other. In a company which has…

Q: Explain why the IRR may contradict the ranking of NPV and therfore not recmmeneded to use when…

A: For single and Individual projects with conventional cash flows, there is no conflicts or…

Q: 5. Which one below is true about IRR analysis when comparing 2 mutually exclusive alternatives? A.…

A:

Q: Which of the following were listed as potential Problems or Issues associated with Using a Rate of…

A: Correct issues of ROR Approach- (2, 3, and 5)

Q: Which one of the following is not a part of Feasibility Analysis in relation to system development?…

A: A practical range to which a project can be performed successfully is termed feasibility. It is used…

Q: .When using the NPV method the decision making rationale includes the following (select all that…

A: NPV : it the difference between PV of cash inflows and PV of cash outflows.

Q: How do you apply the Net Present Value rule when multiple projects are available and you have the…

A: If the NPV is positive, the project should be accepted. If the NPV is negative the project should be…

Q: Which technique would you prefer out of NPV and IRR if the projects were independent projects and…

A: Net Present Value: It is the difference between the present values of cash inflows and cash…

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.