For competing projects, NPV is preferred to IRR because a. maximizing IRR maximizes the wealth of the owners. b. in the final analysis, relative profitability is what counts. c. choosing the project with the largest NPV maximizes the wealth of the shareholders. d. assuming that cash flows are reinvested at the computed IRR is more realistic than assuming that cash flows are reinvested at the required rate of return. e. of all of the above.

For competing projects, NPV is preferred to IRR because a. maximizing IRR maximizes the wealth of the owners. b. in the final analysis, relative profitability is what counts. c. choosing the project with the largest NPV maximizes the wealth of the shareholders. d. assuming that cash flows are reinvested at the computed IRR is more realistic than assuming that cash flows are reinvested at the required rate of return. e. of all of the above.

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter11: Cash Flow Estimation And Risk Analysis

Section11.1: Identifying Relevant Cash Flows

Problem 3ST

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which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate. 3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money
Which of the following statements is most correct? If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s profitability index must be positive. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR. Group of answer choices Only statements I and II are incorrect. None of the statements above is incorrect. Only statement II is correct. Only statement I is correct. Only statement III is incorrect.
Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. a. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. b. If a project has normal cash flows and its IRR exceeds its cost of capital, then the project's NPV must be positive. c. The IRR calculation implicitly assumes that all cash flows are reinvested at the cost of capital. d. If Project A has a higher IRR than Project B, then Project A must have the lower NPV. e. The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
Which of the following statements is CORRECT? a. If a project with normal cash flows has an IRR greater than the cost of capital, the project must also have a positive NPV. b. If a project with normal cash flows has an IRR less than the cost of capital, the project must have a positive NPV. c. If the NPV is negative, the IRR must also be negative. d. A project's MIRR can never exceed its IRR. e. If Project A's IRR exceeds Project B's, then A must have the higher NPV.
Which of the following statements is most correct? If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value (NPV) must be positive. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV. The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the cost of capital. Answers a and c are correct. None of the answers above are correct.
Which of the following statements is most FALSE? A. If a project with normal cash flows has a positive NPV, it will definitely have an MIRR greater than the cost of capital. B. If a project with normal cash flows has an IRR that is greater than the cost of capital, then taking on that project would decrease the value of the firm. C. If a project has normal cash flows, then the MIRR has to be between k and IRR if the project has positive interim cash flows (cash flows between t=0 and the end of the project). D. If a project with normal cash flows does not have any interim cash flows, the project's IRR will equal the project's MIRR. E. Multiple IRRS can exist for a project if the project has nonnormal cash flows. OA OB OC
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.
For a typical project evaluation with initial investment at time=0 and positive cash flows afterwards, each statement in the following shows possible answers in parenthesis. Choose the answer that shows correct answers for all statements. Statement 1: When NPV = 0, investors earn (negative/zero/positive) return. Statement 2: Accept the project when valuation is (higher/the same/lower) than the cost. Statement 3: When IRR> cost of capital, NPV is (negative/zero/positive). Statement 4: Cost of capital is determined by the (company/investors) considering the (business risk/systematic) risk) a. negative, higher, positive, investors and systematic b. positive, lower, positive, investors and business c. positive, higher, zero, company and systematic d. positive, higher, positive, investors and systematic
The relationship between NPV and IRR is such thata. both approaches always provide the same ranking of alternative investment projects.b. the IRR of a project is equal to the firm's cost of capital if the NPV of a project is $0.c. if the NPV of a project is negative, the IRR must be greater than the cost of capital.d. none of the above
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.
All of the followings are True when the net present value method is used to choose between two investment alternatives, except: OA All cash inflows and outflows should be considered in calculating the net present value of the two alternatives. OB. Oc The net present value of the two alternatives calculated using the total cost approach need to be compared. Managers should choose the alternative that has the least total cost from a present value perspective. The relevant cash flows should be isolated from the irrelevant cash flows. OD.
The profitability index O will never be greater than 1. O does not take into account the discounted cash flows. O allows comparison of the relative desirability of projects that require differing initial investments. O is calculated by dividing total cash flows by the initial investment.