Question 1

Which of the following statements is CORRECT?

Accepted Answer

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.F) A) and C)
G) D) and E)

Question 2

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.

Accepted Answer

A)   A project's regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV) ,then discounting the TV at the WACC.
B)   A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV) ,then discounting the TV to find the IRR.
C)   If a project's IRR is smaller than the WACC,then its NPV will be positive.
D)   A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost.
E)   If a project's IRR is positive,then its NPV must also be positive.F) C) and D)
G) A) and B)

Question 3

Which of the following statements is CORRECT?

Accepted Answer

A)   The NPV method was once the favorite of academics and business executives,but today most authorities regard the MIRR as being the best indicator of a project's profitability.
B)   If the cost of capital declines,this lowers a project's NPV.
C)   The NPV method is regarded by most academics as being the best indicator of a project's profitability,hence most academics recommend that firms use only this one method and disregard other methods.
D)   A project's NPV depends on the total amount of cash flows the project produces,but because the cash flows are discounted at the WACC,it does not matter if the cash flows occur early or late in the project's life.
E)   The NPV and IRR methods may give different recommendations regarding which of two mutually exclusive projects should be accepted,but they always give the same recommendation regarding the acceptability of a normal,independent project.F) C) and D)
G) A) and B)

Question 4

Hindelang Inc.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.

Accepted Answer

A)   15.00%
B)   12.83%
C)   16.67%
D)   13.33%
E)   20.66%F) A) and B)
G) B) and C)

Question 5

Simms Corp.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.

Accepted Answer

A)   9.64%
B)   10.82%
C)   12.58%
D)   11.29%
E)   11.76%F) A) and B)
G) A) and C)

Question 6

Warnock Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Accepted Answer

A)   -$47.38
B)   -$39.09
C)   -$29.61
D)   -$40.27
E)   -$39.48F) A) and B)
G) B) and D)

Question 7

Both the regular and the modified IRR (MIRR)methods have wide appeal to professors,but most business executives prefer the NPV method to either of the IRR methods.

Accepted Answer

A) True 
 B)False

Question 8

The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared.

Accepted Answer

A) True 
 B)False

Question 9

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.

Accepted Answer

A)   If Project A has a higher IRR than Project B,then Project A must have the lower NPV.
B)   If Project A has a higher IRR than Project B,then Project A must also have a higher NPV.
C)   The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC.
D)   The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
E)   If a project has normal cash flows and its IRR exceeds its WACC,then the project's NPV must be positive.F) A) and B)
G) D) and E)

Question 10

Assume that the economy is enjoying a strong boom,and as a result interest rates and money costs generally are relatively high.The WACC for two mutually exclusive projects that are being considered is 12%.Project S has an IRR of 20% while Project L's IRR is 15%.The projects have the same NPV at the 12% current WACC.However,you believe that the economy will soon fall into a mild recession,and money costs and thus your WACC will soon decline.You also think that the projects will not be funded until the WACC has decreased,and their cash flows will not be affected by the change in economic conditions.Under these conditions,which of the following statements is CORRECT?

Accepted Answer

A)   You should reject both projects because they will both have negative NPVs under the new conditions.
B)   You should delay a decision until you have more information on the projects,even if this means that a competitor might come in and capture this market.
C)   You should recommend Project L,because at the new WACC it will have the higher NPV.
D)   You should recommend Project S,because at the new WACC it will have the higher NPV.
E)   You should recommend Project L because it will have both a higher IRR and a higher NPV under the new conditions.F) B) and D)
G) A) and C)

Question 11

For a project with one initial cash outflow followed by a series of positive cash inflows,the modified IRR (MIRR)method involves compounding the cash inflows out to the end of the project's life,summing those compounded cash flows to form a terminal value (TV),and then finding the discount rate that causes the PV of the TV to equal the project's cost.

Accepted Answer

A) True 
 B)False

Question 12

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.

Accepted Answer

A)   A project's MIRR is always greater than its regular IRR.
B)   A project's MIRR is always less than its regular IRR.
C)   If a project's IRR is greater than its WACC,then the MIRR will be less than the IRR.
D)   If a project's IRR is greater than its WACC,then the MIRR will be greater than the IRR.
E)   To find a project's MIRR,we compound cash inflows at the IRR and then discount the terminal value back to t = 0 at the WACC.F) All of the above
G) A) and D)

Question 13

You are on the staff of Camden Inc.The CFO believes project acceptance should be based on the NPV,but Steve Camden,the president,insists that no project should be accepted unless its IRR exceeds the project's risk-adjusted WACC.Now you must make a recommendation on a project that has a cost of $15,000 and two cash flows: $110,000 at the end of Year 1 and -$100,000 at the end of Year 2.The president and the CFO both agree that the appropriate WACC for this project is 10%.At 10%,the NPV is $2,355.37,but you find two IRRs,one at 6.33% and one at 527.01%,and a MIRR of 11.32%.Which of the following statements best describes your optimal recommendation,i.e. ,the analysis and recommendation that is best for the company and least likely to get you in trouble with either the CFO or the president?

Accepted Answer

A)   You should recommend that the project be rejected because its NPV is negative and its IRR is less than the WACC.
B)   You should recommend that the project be rejected because,although its NPV is positive,it has an IRR that is less than the WACC.
C)   You should recommend that the project be accepted because (1) its NPV is positive and (2) although it has two IRRs,in this case it would be better to focus on the MIRR,which exceeds the WACC.You should explain this to the president and tell him that that the firm's value will increase if the project is accepted.
D)   You should recommend that the project be rejected because (1) its NPV is positive and (2) it has two IRRs,one of which is less than the WACC,which indicates that the firm's value will decline if the project is accepted.
E)   You should recommend that the project be rejected because,although its NPV is positive,its MIRR is less than the WACC,and that indicates that the firm's value will decline if it is accepted.F) A) and B)
G) B) and C)

Question 14

Datta Computer Systems 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.  ​

Accepted Answer

A)   12.69%
B)   13.98%
C)   15.58%
D)   18.15%
E)   16.07%F) C) and D)
G) A) and C)

Question 15

Ingram Electric Products 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.

Accepted Answer

A)   14.93%
B)   10.00%
C)   12.04%
D)   13.97%
E)   9.15%F) B) and C)
G) B) and E)

Question 16

The IRR of normal Project X is greater than the IRR of normal Project Y,and both IRRs are greater than zero.Also,the NPV of X is greater than the NPV of Y at the cost of capital.If the two projects are mutually exclusive,Project X should definitely be selected,and the investment made,provided we have confidence in the data.Put another way,it is impossible to draw NPV profiles that would suggest not accepting Project X.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following statements is CORRECT?

Accepted Answer

A)   If a project with normal cash flows has an IRR greater than the WACC,the project must also have a positive NPV.
B)   If Project A's IRR exceeds Project B's,then A must have the higher NPV.
C)   A project's MIRR can never exceed its IRR.
D)   If a project with normal cash flows has an IRR less than the WACC,the project must have a positive NPV.
E)   If the NPV is negative,the IRR must also be negative.F) A) and B)
G) A) and C)

Question 18

Resnick Inc.is considering a project that has the following cash flow data.What is the project's payback?

Accepted Answer

A)   2.61 years
B)   1.97 years
C)   2.42 years
D)   2.26 years
E)   2.38 yearsF) A) and B)
G) C) and E)

Question 19

Jazz World Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Accepted Answer

A)   0$222.13
B)   0$185.11
C)   0$157.34
D)   0$174.00
E)   0$198.07F) A) and B)
G) None of the above

Question 20

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.

Accepted Answer

A)   The longer a project's payback period,the more desirable the project is normally considered to be by this criterion.
B)   One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money.
C)   If a project's payback is positive,then the project should be rejected because it must have a negative NPV.
D)   The regular payback ignores cash flows beyond the payback period,but the discounted payback method overcomes this problem.
E)   If a company uses the same payback requirement to evaluate all projects,say it requires a payback of 4 years or less,then the company will tend to reject projects with relatively short lives and accept long-lived projects,and this will cause its risk to increase over time.F) B) and E)
G) A) and B)

Exam 11: The Basics of Capital Budgeting

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.

Correct Answer
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Correct Answer
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Hindelang Inc.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.

Correct Answer
verified

Correct Answer
verified

Jazz World Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Simms Corp.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.

Correct Answer
verified

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.

Correct Answer
verified

Correct Answer
verified

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.

Correct Answer
verified

Datta Computer Systems 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.

Correct Answer
verified

Resnick Inc.is considering a project that has the following cash flow data.What is the project's payback?

Correct Answer
verified

Warnock Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Correct Answer
verified

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.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared.

Correct Answer
verified

Ingram Electric Products 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.

Correct Answer
verified

Both the regular and the modified IRR (MIRR)methods have wide appeal to professors,but most business executives prefer the NPV method to either of the IRR methods.

Correct Answer
verified

Which of the following statements is CORRECT?

Correct Answer
verified

Correct Answer
verified

Exam 11: The Basics of Capital Budgeting

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Hindelang Inc.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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Jazz World Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Simms Corp.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.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Datta Computer Systems 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. ​

Correct AnswerverifiedShow Answer

Resnick Inc.is considering a project that has the following cash flow data.What is the project's payback?

Correct AnswerverifiedShow Answer

Warnock Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Correct AnswerverifiedShow Answer

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.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared.

Correct AnswerverifiedShow Answer

Ingram Electric Products 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.

Correct AnswerverifiedShow Answer

Both the regular and the modified IRR (MIRR)methods have wide appeal to professors,but most business executives prefer the NPV method to either of the IRR methods.

Correct AnswerverifiedShow Answer

Which of the following statements is CORRECT?

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Datta Computer Systems 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.

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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