What will happen to the internal rate of return (IRR) of a project if the discount rate is decreased from 8% to 6%? Select one: a. We cannot determine the direction of the effect on IRR from the information provided. b. The change in discount rate will not affect IRR. c. IRR will always increase. d. IRR will always decrease.

What will happen to the internal rate of return (IRR) of a project if the discount rate is decreased from 8% to 6%? Select one: a. We cannot determine the direction of the effect on IRR from the information provided. b. The change in discount rate will not affect IRR. c. IRR will always increase. d. IRR will always decrease.

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 16MCQ: Using IRR, a project is rejected if the IRR a. is equal to the required rate of return. b. is less...

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n 0 1 2 3 4 5 6 7 8 9 10 A -$250 $60 $970 B -$200 $90 $90 $60 $60 Net Cashflow с -$70 $20 $10 $5 -$50 $60 $50 $40 $30 $20 $10 D -$300 $270 $250 -$129 -$20 $120 $40 E -$90 -$100 -$50 $0 $150 $150 $100 $100
If the net present value of a proposed investment is negative, what is the discount rate used? O Less than the project's internal rate of return. Less than the minimum required rate of return. Greater than the project's internal rate of return. Greater than the minimum required rate of return.
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.
Which of the following performance measures will decrease if the minimum required rate of return increases? return on investment residual income A yes yes B no yes C yes no D no no
Which of the following statements is correct? A. If the NPV of a project is greater than 0, its PI will equal 0. B. If the IRR of a project is 0%, its NPV, using a discount rate, k, greater than 0, will be 0. C. If the PI of a project is less than 1, its NPV should be less than 0. D. None
You should accept a project when the ?: net present value is negative. profitability index is positive. payback period exceeds the required period. AAR is greater than the required return. 7. Which one of the following statements is correct? The payback period is also referred to as the benefit-cost ratio. The internal rate of return can be reliably used for all independent projects. The profitability index is used when the investment funds are limited. The net present value should not be used to rank mutually exclusive projects. 8. You should accept a project when the ?: net present value is negative. profitability index is less than 1 but greater than 0. discounted payback period is less than the required period. AAR is less than the required return. 9. The crossover point ? : is used to determine which one of two internal rates of return for a project should be used when determining if a project should be accepted. 2. is the…
The internal rate of return (IRR) is the: Multiple Choice discount rate that results in a zero net present value for the project. discount rate that causes a project's aftertax income to equal zero.
Which of the following statements is true? Multiple Cholce There Is no correlation between net present value and Internal rate of return. A project with a positive net present value will have a discount rate that Is greater than the Internal rate of return. None of the statements are true Glven several projects with positive net present values, the company should choose the project with the hlghest net present value. A project with a positive net present value will have a discount rate that Is less than the Internal rate of return.
What do you know about the mathematical value of the internal rate of return of a project under each of the following conditions? a.The future worth of the project is equal to zero. b. The future worth of the project is less than zero.
A disadvantage of using the accounting rate of return to evaluate investment alternatives is that Group of answer choices A. It is superior to IRR. B. When net incomes vary from year to year, the ARR will also vary across years, making the project seem desirable in one year and not another. C. It considers the time value of money. D. It is easy to understand and it allows comparison or projects. E. Using ARR has no disadvantages.
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.
What should a manager do with a project that has two internal rates of return (IRRs)? O a. Do the project if the higher of the two IRRs exceeds the cost of capital. O b. Do the project if the lower of the two IRRS exceeds the cost of capital. Oc. Choose the IRR that looks the most reasonable, and do the project if this chosen IRR is greater than the cost of capital. Od. Abandon the project, as it involves unconventional cash flows. O e. Do the project if the net present value of the project is greater than zero.