You have just assessed a project involving an immediate cash outflow followed by a series of cash inflows over the next seven years by calculating the NPV and the IRR. You now discover that you have underestimated the discount rate. Using the correct, higher discount rate will have the following effects, relative your original NPV and IRR results:

You have just assessed a project involving an immediate cash outflow followed by a series of cash inflows over the next seven years by calculating the NPV and the IRR. You now discover that you have underestimated the discount rate. Using the correct, higher discount rate will have the following effects, relative your original NPV and IRR results:

International Financial Management

14th Edition

ISBN:9780357130698

Author:Madura

Publisher:Madura

Chapter14: Multinational Capital Budgeting

Section: Chapter Questions

Problem 1IEE

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You have just assessed a project, involving an immediate cash outflow followed by a series of cash inflows over the next seven years, by calculating the NPV and the IRR. You have now discovered that you have underestimated the discount rate. Correcting for the underestimation will have the following effects, relative to your original calculations
You have just assessed a project involving an immediate cash outflow followed by a series of cash inflows over the next seven years, by deducing the net present value (NPV) and the internal rate of return (IRR). You have now discovered that you have underestimated the discount rate. Correcting for the underestimation will have which one of the following effects, relative to your original deductions? O A. Reduction in the NPV and no change in the IRR OB. No change in either the NPV or IRR OC. Increase in the NPV and a reduction in the IRR OD. Increase in both the NPV and the IRR (...)
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Which of the following statements is true? The internal rate of return is the rate of return of an investment project over its useful life. When the net cash inflow is the same every year for a project after the initial investment, the internal rate of return of a project can be determined by dividing the initial investment required in the project by the annual net cash inflow. This computation yields a factor that can be looked up in a table of present values of annuities to find the internal rate of return. Multiple Choice Only statement I is true. Only statement II is true. Both statements are true.
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You are considering an investment project with the cash flows of -300 (the initial cash flow), 700 (cash flow at year 1), -200 (cash flow at year 2). Given the discount rate of 10%, compute the Modified Internal Rate of Return (MIRR) using the discounting approach. 50.44% 10.72% O 28.64% O 37.84%
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