Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.

Which of the following statements is CORRECT? a. An NPV profile graph shows how a project's payback varies as the cost of capital changes. b. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. c. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. d. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 3DQ

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Which of the following statements is CORRECT? a. The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases. b. An NPV profile graph shows how a project's payback varies as the cost of capital changes. O c. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital. d. An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life. e. We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.
What are the shortcomings of the internal rate of return criterion? How do you make an investment decision based on the IRR? How would the NPV of the same project look?
Consider the following sets of investment projects: (a) Classify each project as either simple or nonsimple.(b) Compute the i* for Project A, using the quadratic equation.(c) Obtain the rate(s) of return for each project by plotting the PW as a function of interest rate.
1. Compare and contrast the beta of the project and explain how it will affect the return on investment of the project. 2.
We should accept a project if the Net Present Value is positive and the Internal Rate of Return is higher than the cost of capital. What are the reasons for that, what this means?
You are analyzing a project and have prepared the following data: a. Based on the net present value of this project, should you reject or accept this project? (Please provide the formulas for calculation or the keys applied if a financial calculator is used) b. What is the internal rate of return (IRR) of this project? Should you reject or accept this project? (Please use a financial calculator and list the keys you use)
Examine the following statements. (i) Payback period method measure the true profitability of a project. (ii) Capital Rationing and capital budgeting mean the same thing. (iii) Internal Rate of Return and Time Adjusted rate of Return are the same thing. (iv) Rate of Return takes into account the time value of money. A. (i), (ii) and (iii) are correct. B. (ii) and (iii) are correct. C. Only (iii) is correct. D. All (i), (ii), (iii) and (iv) are false
QUESTION 5 Invest in any or all of the four projects whose relevant cash flows are given in the following table. The firm has RM7,000,000 budgeted to fund these projects, all of which are known to be acceptable. Initial investment for each project is the same for all projects which is RM1,600,000. The rate of return for all projects is equivalent to 8%. Operating cash outflow Project X Year 1 Project Y Cash Outflow RM1,600,000 (for each project) Operating Cash Inflows RM 440,000 RM 140,000 1 340,000 220,000 (110,000) ( 95,000 ) 105,000 220,000 388,000 180,000 250,000 260,000 370,000 460,000 3. 4. 5. 6. 7. 8. 9. Use this table for PROJECT X and Y Period PVIF 8% 1 0.9259 2 0.8573 3 0.7938 4 0.7350 0.6806 6 0.6302 7 0.5835 8 0.5403 9 0.5002 10 0.4632 8
What is capital budgeting? Compare the advantages and disadvantages of various capital budgeting techniques. Do you think NPV is the best decision criterion and it can overcome the problems inherent in other methods? Justify your answer.
Which provides a better estimate of a project’s “true” rate of return, the MIRR or theregular IRR? Explain.
What is a capital budgeting technique that generates decision rules and associated metrics for choosing projects, based on the implicit, expected geometric average of a project's rate of return?
One must know the discount rate of an investment project to compute its: NPV, IRR, PI and payback period. NPV and IRR. Payback period and IRR. NPV and PI.

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	a.	An NPV profile graph shows how a project's payback varies as the cost of capital changes.
	b.	The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
	c.	An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
	d.	An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.
	e.	We cannot draw a project's NPV profile unless we know the appropriate WACC for use in evaluating the project's NPV.