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Mansi Inc.is considering a project that has the following cash flow data.What is the project's payback? Mansi Inc.is considering a project that has the following cash flow data.What is the project's payback? A) 1.28 years B) 1.58 years C) 1.83 years D) 1.62 years E) 1.49 years


A) 1.28 years
B) 1.58 years
C) 1.83 years
D) 1.62 years
E) 1.49 years

F) A) and B)
G) A) and E)

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Last month,Lloyd's Systems analyzed the project whose cash flows are shown below.However,before the decision to accept or reject the project,the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative,in which case it should be rejected. Last month,Lloyd's Systems analyzed the project whose cash flows are shown below.However,before the decision to accept or reject the project,the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative,in which case it should be rejected. A) 0$9.04 B) 0$11.12 C) 0$10.22 D) 0$10.85 E) 0$10.13


A) 0$9.04
B) 0$11.12
C) 0$10.22
D) 0$10.85
E) 0$10.13

F) A) and E)
G) A) and D)

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A company is choosing between two projects.The larger project has an initial cost of $100,000,annual cash flows of $30,000 for 5 years,and an IRR of 15.24%.The smaller project has an initial cost of $51,600,annual cash flows of $16,000 for 5 years,and an IRR of 16.65%.The projects are equally risky.Which of the following statements is CORRECT?


A) Since the smaller project has the higher IRR,the two projects' NPV profiles cannot cross,and the smaller project's NPV will be higher at all positive values of WACC.
B) Since the smaller project has the higher IRR,the two projects' NPV profiles will cross,and the larger project will look better based on the NPV at all positive values of WACC.
C) If the company uses the NPV method,it will tend to favor smaller,shorter-term projects over larger,longer-term projects,regardless of how high or low the WACC is.
D) Since the smaller project has the higher IRR but the larger project has the higher NPV at a zero discount rate,the two projects' NPV profiles will cross,and the larger project will have the higher NPV if the WACC is less than the crossover rate.
E) Since the smaller project has the higher IRR and the larger NPV at a zero discount rate,the two projects' NPV profiles will cross,and the smaller project will look better if the WACC is less than the crossover rate.

F) None of the above
G) All of the above

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D

You are considering two mutually exclusive,equally risky,projects.Both have IRRs that exceed the WACC.Which of the following statements is CORRECT? Assume that the projects have normal cash flows,with one outflow followed by a series of inflows.


A) If the two projects' NPV profiles do not cross,then there will be a sharp conflict as to which one should be selected.
B) If the cost of capital is greater than the crossover rate,then the IRR and the NPV criteria will not result in a conflict between the projects.One project will rank higher by both criteria.
C) If the cost of capital is less than the crossover rate,then the IRR and the NPV criteria will not result in a conflict between the projects.One project will rank higher by both criteria.
D) For a conflict to exist between NPV and IRR,the initial investment cost of one project must exceed the cost of the other.
E) For a conflict to exist between NPV and IRR,one project must have an increasing stream of cash flows over time while the other has a decreasing stream.If both sets of cash flows are increasing or decreasing,then it would be impossible for a conflict to exist,even if one project is larger than the other.

F) A) and B)
G) A) and C)

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Ehrmann Data Systems is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative) ,in which case it will be rejected. Ehrmann Data Systems is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative) ,in which case it will be rejected. A) 13.84% B) 14.53% C) 17.29% D) 13.28% E) 13.70%


A) 13.84%
B) 14.53%
C) 17.29%
D) 13.28%
E) 13.70%

F) A) and C)
G) B) and C)

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Warr Company is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. ​ Warr Company is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. ​ ​ A) ​0.85% B) 0.78% C) ​0.88% D) 0.76% E) ​0.91% ​


A) ​0.85%
B) 0.78%
C) ​0.88%
D) 0.76%
E) ​0.91%

F) None of the above
G) A) and B)

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Kosovski Company is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and are not repeatable.If the decision is made by choosing the project with the higher IRR,how much value will be forgone? Note that under some conditions choosing projects on the basis of the IRR will cause $0.00 value to be lost. Kosovski Company is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and are not repeatable.If the decision is made by choosing the project with the higher IRR,how much value will be forgone? Note that under some conditions choosing projects on the basis of the IRR will cause $0.00 value to be lost. A) $29.26 B) $35.69 C) $34.82 D) $26.33 E) $31.31


A) $29.26
B) $35.69
C) $34.82
D) $26.33
E) $31.31

F) A) and B)
G) C) and D)

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Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.


A) If a project's IRR is equal to its WACC,then,under all reasonable conditions,the project's NPV must be negative.
B) If a project's IRR is equal to its WACC,then under all reasonable conditions,the project's IRR must be negative.
C) If a project's IRR is equal to its WACC,then under all reasonable conditions the project's NPV must be zero.
D) There is no necessary relationship between a project's IRR,its WACC,and its NPV.
E) 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.

F) B) and D)
G) C) and E)

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Tuttle Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's projected NPV is negative,it should be rejected. Tuttle Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's projected NPV is negative,it should be rejected. A) 084.03 B) 064.70 C) 059.49 D) 082.54 E) 074.36


A) 084.03
B) 064.70
C) 059.49
D) 082.54
E) 074.36

F) B) and C)
G) B) and E)

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Suppose a firm relies exclusively on the payback method when making capital budgeting decisions,and it sets a 4-year payback regardless of economic conditions.Other things held constant,which of the following statements is most likely to be true?


A) It will accept too many short-term projects and reject too many long-term projects (as judged by the NPV) .
B) It will accept too many long-term projects and reject too many short-term projects (as judged by the NPV) .
C) The firm will accept too many projects in all economic states because a 4-year payback is too low.
D) The firm will accept too few projects in all economic states because a 4-year payback is too high.
E) If the 4-year payback results in accepting just the right set of projects under average economic conditions,then this payback will result in too few long-term projects when the economy is weak.

F) B) and E)
G) A) and C)

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Maxwell Feed & Seed is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative) ,in which case it will be rejected. Maxwell Feed & Seed is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative) ,in which case it will be rejected. A) 15.45% B) 17.17% C) 13.74% D) 15.61% E) 12.96%


A) 15.45%
B) 17.17%
C) 13.74%
D) 15.61%
E) 12.96%

F) A) and B)
G) A) and C)

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D

Which of the following statements is CORRECT?


A) The shorter a project's payback period,the less desirable the project is normally considered to be by this criterion.
B) One drawback of the payback criterion is that this method does not take account of cash flows beyond the payback period.
C) If a project's payback is positive,then the project should be accepted because it must have a positive NPV.
D) The regular payback ignores cash flows beyond the payback period,but the discounted payback method overcomes this problem.
E) One drawback of the discounted payback is that this method does not consider the time value of money,while the regular payback overcomes this drawback.

F) A) and E)
G) A) and C)

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A basic rule in capital budgeting is that if a project's NPV exceeds its IRR,then the project should be accepted.

A) True
B) False

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False

Other things held constant,an increase in the cost of capital will result in a decrease in a project's IRR.

A) True
B) False

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Which of the following statements is CORRECT?


A) The NPV method assumes that cash flows will be reinvested at the WACC,while the IRR method assumes reinvestment at the IRR.
B) The NPV method assumes that cash flows will be reinvested at the risk-free rate,while the IRR method assumes reinvestment at the IRR.
C) The NPV method assumes that cash flows will be reinvested at the WACC,while the IRR method assumes reinvestment at the risk-free rate.
D) The NPV method does not consider all relevant cash flows,particularly cash flows beyond the payback period.
E) The IRR method does not consider all relevant cash flows,particularly cash flows beyond the payback period.

F) C) and D)
G) D) and E)

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Small businesses make less use of DCF capital budgeting techniques than large businesses.This may reflect a lack of knowledge on the part of small firms' managers,but it may also reflect a rational conclusion that the costs of using DCF analysis outweigh the benefits of these methods for very small firms.

A) True
B) False

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The NPV method's assumption that cash inflows are reinvested at the cost of capital is generally more reasonable than the IRR's assumption that cash flows are reinvested at the IRR.This is an important reason why the NPV method is generally preferred over the IRR method.

A) True
B) False

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Lasik Vision Inc.recently analyzed the project whose cash flows are shown below.However,before Lasik decided to accept or reject the project,the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative,in which case it should be rejected. Lasik Vision Inc.recently analyzed the project whose cash flows are shown below.However,before Lasik decided to accept or reject the project,the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative,in which case it should be rejected. A) -$30.55 B) -$34.12 C) -$32.50 D) -$28.60 E) -$29.25


A) -$30.55
B) -$34.12
C) -$32.50
D) -$28.60
E) -$29.25

F) A) and E)
G) B) and E)

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McCall Manufacturing has a WACC of 10%.The firm is considering two normal,equally risky,mutually exclusive,but not repeatable projects.The two projects have the same investment costs,but Project A has an IRR of 15%,while Project B has an IRR of 20%.Assuming the projects' NPV profiles cross in the upper right quadrant,which of the following statements is CORRECT?


A) Each project must have a negative NPV.
B) Since the projects are mutually exclusive,the firm should always select Project B.
C) If the crossover rate is 8%,Project B will have the higher NPV.
D) Only one project has a positive NPV.
E) If the crossover rate is 8%,Project A will have the higher NPV.

F) A) and C)
G) All of the above

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The NPV method is based on the assumption that projects' cash flows are reinvested at the project's risk-adjusted cost of capital.

A) True
B) False

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