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Which of the following statements is CORRECT?


A) If a project has "normal" cash flows,then its IRR must be positive.
B) If a project has "normal" cash flows,then its MIRR must be positive.
C) If a project has "normal" cash flows,then it will have exactly two real IRRs.
D) The definition of "normal" cash flows is that the cash flow stream has one or more negative cash flows followed by a stream of positive cash flows and then one negative cash flow at the end of the project's life.
E) If a project has "normal" cash flows,then it can have only one real IRR,whereas a project with "nonnormal" cash flows might have more than one real IRR.

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

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Which of the following statements is CORRECT?


A) The regular payback method recognizes all cash flows over a project's life.
B) The discounted payback method recognizes all cash flows over a project's life,and it also adjusts these cash flows to account for the time value of money.
C) The regular payback method was,years ago,widely used,but virtually no companies even calculate the payback today.
D) The regular payback is useful as an indicator of a project's liquidity because it gives managers an idea of how long it will take to recover the funds invested in a project.
E) The regular payback does not consider cash flows beyond the payback year,but the discounted payback overcomes this defect.

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

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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. 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. A) 19.67% B) 17.23% C) 16.26% D) 15.77% E) 16.91%


A) 19.67%
B) 17.23%
C) 16.26%
D) 15.77%
E) 16.91%

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

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Taggart Inc.is considering a project that has the following cash flow data.What is the project's payback? Taggart Inc.is considering a project that has the following cash flow data.What is the project's payback? A) 1.85 years B) 1.42 years C) 1.96 years D) 2.29 years E) 1.79 years


A) 1.85 years
B) 1.42 years
C) 1.96 years
D) 2.29 years
E) 1.79 years

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

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Projects S and L both have normal cash flows,and the projects have the same risk,hence both are evaluated with the same WACC,10%.However,S has a higher IRR than L.Which of the following statements is CORRECT?


A) Project S must have a higher NPV than Project L.
B) If Project S has a positive NPV,Project L must also have a positive NPV.
C) If the WACC falls,each project's IRR will increase.
D) If the WACC increases,each project's IRR will decrease.
E) If Projects S and L have the same NPV at the current WACC,10%,then Project L,the one with the lower IRR,would have a higher NPV if the WACC used to evaluate the projects declined.

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

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Masulis Inc.is considering a project that has the following cash flow and WACC data.What is the project's discounted payback? Masulis Inc.is considering a project that has the following cash flow and WACC data.What is the project's discounted payback? A) 2.62 years B) 3.32 years C) 2.75 years D) 3.42 years E) 3.05 years


A) 2.62 years
B) 3.32 years
C) 2.75 years
D) 3.42 years
E) 3.05 years

F) All of the above
G) B) and E)

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Which of the following statements is CORRECT?


A) The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount,which the NPV method provides.
B) The discounted payback method eliminates all of the problems associated with the payback method.
C) When evaluating independent projects,the NPV and IRR methods often yield conflicting results regarding a project's acceptability.
D) To find the MIRR,we discount the TV at the IRR.
E) A project's NPV profile must intersect the X-axis at the project's WACC.

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

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Four of the following statements are truly disadvantages of the regular payback method,but one is not a disadvantage of this method.Which one is NOT a disadvantage of the payback method?


A) Lacks an objective,market-determined benchmark for making decisions.
B) Ignores cash flows beyond the payback period.
C) Does not directly account for the time value of money.
D) Does not provide any indication regarding a project's liquidity or risk.
E) Does not take account of differences in size among projects.

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

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

A) True
B) False

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Which of the following statements is CORRECT?


A) For a project with normal cash flows,any change in the WACC will change both the NPV and the IRR.
B) To find the MIRR,we first compound cash flows at the regular IRR to find the TV,and then we discount the TV at the WACC to find the PV.
C) The NPV and IRR methods both assume that cash flows can be reinvested at the WACC.However,the MIRR method assumes reinvestment at the MIRR itself.
D) If two projects have the same cost,and if their NPV profiles cross in the upper right quadrant,then the project with the higher IRR probably has more of its cash flows coming in the later years.
E) If two projects have the same cost,and if their NPV profiles cross in the upper right quadrant,then the project with the lower IRR probably has more of its cash flows coming in the later years.

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

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An increase in the firm's WACC will decrease projects' NPVs,which could change the accept/reject decision for any potential project.However,such a change would have no impact on projects' IRRs.Therefore,the accept/reject decision under the IRR method is independent of the cost of capital.

A) True
B) False

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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.

A) True
B) False

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Which of the following statements is CORRECT?


A) One defect of the IRR method is that it does not take account of cash flows over a project's full life.
B) One defect of the IRR method is that it does not take account of the time value of money.
C) One defect of the IRR method is that it does not take account of the cost of capital.
D) One defect of the IRR method is that it values a dollar received today the same as a dollar that will not be received until sometime in the future.
E) One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself,and that assumption is often not valid.

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

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Assume a project has normal cash flows.All else equal,which of the following statements is CORRECT?


A) A project's IRR increases as the WACC declines.
B) A project's NPV increases as the WACC declines.
C) A project's MIRR is unaffected by changes in the WACC.
D) A project's regular payback increases as the WACC declines.
E) A project's discounted payback increases as the WACC declines.

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

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A firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital (its WACC).

A) True
B) False

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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?


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

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Thorley Inc.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. ​ Thorley Inc.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) 2.73% B) 2.87% C) 2.13% D) 2.95% E) 2.46%


A) 2.73%
B) 2.87%
C) 2.13%
D) 2.95%
E) 2.46%

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

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A firm is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.The CEO wants to use the IRR criterion,while the CFO favors the NPV method.You were hired to advise the firm on the best procedure.If the wrong decision criterion is used,how much potential value would the firm lose? A firm is considering Projects S and L,whose cash flows are shown below.These projects are mutually exclusive,equally risky,and not repeatable.The CEO wants to use the IRR criterion,while the CFO favors the NPV method.You were hired to advise the firm on the best procedure.If the wrong decision criterion is used,how much potential value would the firm lose? A) $45.51 B) $50.56 C) $62.70 D) $57.64 E) $45.00


A) $45.51
B) $50.56
C) $62.70
D) $57.64
E) $45.00

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

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

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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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