Which of the following statements is most CORRECT? A. Some projects with normal cash flows have multiple IRRs. B. The IRR method is flawed because it assumes reinvestment of the cash flows at the cost of capital. C. If two, mutually exclusive normal projects have the same size and life, MIRR and NPV may not agree as to which project will add the most value to the firm. D. The MIRR assumes that cash flows are reinvested at the project's k E. Projects with nonnormal cash flows can have multiple MIRRS

Which of the following statements is most CORRECT? A. Some projects with normal cash flows have multiple IRRs. B. The IRR method is flawed because it assumes reinvestment of the cash flows at the cost of capital. C. If two, mutually exclusive normal projects have the same size and life, MIRR and NPV may not agree as to which project will add the most value to the firm. D. The MIRR assumes that cash flows are reinvested at the project's k E. Projects with nonnormal cash flows can have multiple MIRRS

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

One of the benefit of the pay back period is that it focuses on the timing of the project`s benefits and costs, even though it does not adjust the cash flows for the time value of money Select one: True False
The timing of the cash flows is irrelevant when we calculate the NPV of the project, is this true or false?
None
Why is payback often used as the sole method of analyzing a proposed small project? Payback is the most desirable of the various financial methods of analysis. The benefits of payback analysis usually outweigh the costs of the analysis. Payback considers the time value of money. All relevant cash flows are included in the payback analysis. Payback is focused on the long-term impact of a project. OOOO
QUESTION #1: Which of the following is a disadvantage of using the IRR method of capital budgeting over other types: A- IRR does not consider the time and value of money. B- IRR assumes reinvestment of project cash flows at the same rate as the IRR C- IRR ignores the prudent simplicity of paybacks D- None of the above QUESTION #2: The net present value (NPV) of an investment is___________. A- The present value of all benefits (cash inflows) B- The present value of all costs (cash outflows) of the project C- The present value of all benefits (cash inflows) minus the present value of all costs (cash outflows) of the project D- The present value of all benefits (cash outflows) minus the present value of all costs (cash inflows) of the project
be appropriate? Explain. 8.4 Average Accounting Return Concerning AAR: LO 2 Describe how the average accounting return is usually calculated and describe the information this measure provides about a sequence of cash flows. What is the AAR criterion decision rule? a. b. What are the problems associated with using the AAR as a means of evaluating a project's cash flows? What underlying feature of AAR is most troubling to you from a financial perspective? Does the AAR have any redeeming qualities?
The three elements namely incremental cash flow series, LCM, and multiple roots—are considered primary reasons that the ROR method is often applied incorrectly in engineering economy analyses of multiple alternatives Select one: True False
Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky. O If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative. O If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero. O There is no necessary relationship between a project's IRR, its WACC, and its NPV. O 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. O If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.
Discuss the following statement. A manager believes that changes in NWC can be ignored from your free cash flow calculation if it will be recovered at the end of the project.
When a capital investment is expected to provide unequal annual cash inflows, the payback period cannot be calculated.True or False
If we compare two mutually exclusive projects using __________ problems can arise if the projects' cash flows exhibit differences in ___________.
d. Consider the following statement "If an analyst decides to use real options methodology to value a project, estimating a standard Discounted Cash Flow model is useless". Do you agree with this statement? Explain your answer.

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