True or false and why ? 7. A firm may accept a project even if the...
Homework Answers
7. A firm may accept a project even if the acceptance would cause an increase in the firms cost of capital.
Statement is True
Because project is acceptable to a level where Cost of capital is less than the cost of capital
8. Suppose a projects WACC is greater than its IRR, then it’s NPV might still be positive.
Statement is false
If WACC is greater than IRR the NPV will be negative and project is not acceptable
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True or false and why ?
7. A firm may accept a project even if the...
7. A firm may accept a project even if the acceptance would cause an increase in...
7. A firm may accept a project even if the acceptance would cause an increase in the firms cost of capital. 8. Suppose a projects WACC is greater than its IRR, then it’s NPV might still be positive.
A firm may accept a project even if the acceptance would cause an increase in the...
A firm may accept a project even if the acceptance would cause an increase in the firm’s cost of capital. T/F
A firm should never accept a project if its acceptance would lead to an increase in...
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 2 Because "present value" refers to the value of cash flows that occur at different points in time, a series of present values of cash flows should not be summed to determine the value of a capital budgeting project. a. True b. False 3 The IRR method is based on the assumption that...
1a. Why might a financial analyst use the NPV method for making project decisions instead of...
1a. Why might a financial analyst use the NPV method for making project decisions instead of the IRR method? ------------------ 1b. Explain the reinvestment rate assumption in the context of a project’s cash flows over time. ------------------ 1c. When we create NPV profiles, what variable is on the y-axis and what variable is on the x-axis? ------------------ 1d. Suppose a firm’s WACC exceeds the IRR for both projects L and S, if the projects are mutually exclusive, which project should...
1) Suppose that you calculate the NPV of a project, and obtain a value of $100...
1) Suppose that you calculate the NPV of a project, and obtain a value of $100 million dollars. After completing your analysis, you find out that the corporate tax rate will change from 40% to 30%. If nothing else changes, what is the effect of this tax change on the NPV you had calculated? Assume that your company has no debt. a) The new NPV will be lower than $100 b) The new NPV will be higher than $100 c)...
Dropdown options: (accept project Sigma, reject project Sigma) The internal rate of return (IRR) refers to the compound...
Dropdown options: (accept project Sigma, reject project
Sigma)
The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $900,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its...
Assume that a firm has accurately calculated the net cash flows relating to an investment project....
Assume that a firm has accurately calculated the net cash flows relating to an investment project. If the net present value of this proposed project is greater than rero and the firm is not under the constraint of capital rationing, then the firm should Select one: O A. calculate the IRR of this investment to be certain that the IRR is greater than the opportunity cost of capital O B. calculate the payback period to make certain that the initial...
Assume a new project requires an initial investment of $6 million dollars, with ensuing cash flows...
Assume a new project requires an initial investment of $6 million dollars, with ensuing cash flows of $1, $3 and $5 million in years 1, 2 and 3. Assuming the company's WACC is 10%, which of the following statements is true? The firm should accept the project, as the IRR is lower than the WACC. The firm should reject the project, as the IRR is higher than the WACC. The firm should accept the project, as the NPV is positive....
True or False and why? 3. An increase in the weighted average cost of capital will...
True or False and why? 3. An increase in the weighted average cost of capital will result in an increase in a projects internal rate of return, assuming all other conditions hold constant. 4. Conflicts between two independent projects occasionally occur, where the NPV method ranks one project higher but the IRR method puts the other one first. In theory, such conflicts should be resolved in favor of the project with the higher NPV.
Blue Moose Home Builders is evaluating a proposed capital budgeting project (project Sigma) that will require...
Blue Moose Home Builders is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $750,000 Blue Moose Home Builders has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Blue Moose Home Builders's WACC is...
Dropdown options: (accept project Sigma, reject project
Sigma)
The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $900,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however, its...
Assume that a firm has accurately calculated the net cash flows relating to an investment project. If the net present value of this proposed project is greater than rero and the firm is not under the constraint of capital rationing, then the firm should Select one: O A. calculate the IRR of this investment to be certain that the IRR is greater than the opportunity cost of capital O B. calculate the payback period to make certain that the initial...
Blue Moose Home Builders is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $750,000 Blue Moose Home Builders has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR method for capital budgeting decisions. The CFO says that the IRR is a better method because returns in percentage form are easier to understand and compare to required returns. Blue Moose Home Builders's WACC is...
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