9. Which of the following statements is FALSE? A. There are situations in which multiple IRRs...
9. Which of the following statements is FALSE? A. There are situations in which multiple IRRs exist. B. Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions. C. The IRR investment rule states that you should take any investment opportunity where the IRR exceeds the opportunity cost of capital. D. The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital.
Homework Answers
B.
Since the IRR rule is based upon the rate at which the NPV equals
zero, like the NPV decision rule, the IRR decision rule will
always identify the correct investment decisions.
Add Answer to:
9. Which of the following statements is FALSE? A. There are
situations in which multiple IRRs...
7) Which of the following statements is FALSE? A) The IRR investment rule will identify the...
7) Which of the following statements is FALSE? A) The IRR investment rule will identify the correct decision in many, but not all, situations. B) By setting the NPV equal to zero and solving for r, we find the IRR. C) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate. D) The simplest investment rule is the NPV investment rule. 8) Which of the...
Which of the following statements is FALSE? A. The payback investment rule is based on the...
Which of the following statements is FALSE? A. The payback investment rule is based on the notion that an opportunity that pays back its initial investments quickly is a good idea. B. A NPV will always exist for an investment opportunity. C. An IRR will always exist for an investment opportunity. D. In general, there can be as many IRRs as the number of times the project's cash flows change sign over time.
1. We can get multiple IRRS when we draw an NPV profile for a project when:...
1. We can get multiple IRRS when we draw an NPV profile for a project when: a. The project is riskless. b. The project requires a large investment. c. The project cash flows are uneven and change in sign. d. The project has a balloon payment. e. The opportunity cost of capital is high. 2. The length of time required for an investment to generate cash flows sufficient to recover its initial cost, without taking into account time value of...
Which of the following statements is FALSE? O A. The NPV will be positive if the...
Which of the following statements is FALSE? O A. The NPV will be positive if the IRR is less than the cost of capital O B. The IRR can be positive even if the NPV is negative OC. The NPV method is not affected by the multiple IRR problem. OD. If the multiple IRR problem does not exist, any independent project acceptable by NPV method will also be acceptable by the IRR method. O E. When IRR = k (the...
Which of the following statements is INCORRECT? Select one: a. For independent projects, the decision to...
Which of the following statements is INCORRECT? Select one: a. For independent projects, the decision to accept or reject will always be the same using either the MIRR method or the NPV method. b. The IRR method is appealing to some managers because it produces a rate of return upon which to base decisions rather than a dollar amount like the NPV method. c. One of the disadvantages of choosing between mutually exclusive projects on the basis of discounted payback...
You are considering opening a new plant. The plant will cost $99.5 million upfront and will...
You are considering opening a new plant. The plant will cost $99.5 million upfront and will take one year to build. After that, it is expected to produce profits of $29.2 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.1%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? Years...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash inflows of $13 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $11 million, payable at the end of Year 2. a. Plot the project's NPV profile. B NEY NPV Miliens of Dulles Men of Dole 200 3000WACC) 80 200 300 400 WACC) 200 300 400 WACC)...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $2 million. Cash inflows of $12.5 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $11 million, payable at the end of Year 2. Plot the project's NPV profile. The correct sketch is -Select-ABCDItem 1 . Should the project be accepted if WACC = 10%? -Select-YesNoItem 2 Should the project...
4. Professor Wendy Smith has been offered the following opportunity: A law firm would like to...
4. Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $540 per hour and her opportunity cost of capital is 15% per year. What does...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land must be returned to its natural state at a cost $11 million, payable at the end of Year 2. a. Plot the project's NPV profile. NPV i Millions of Dollas) NPV (Millions of Dollas) | *** ****** NPV Millions of Dollar) | ********* * *** non...
7) Which of the following statements is FALSE? A) The IRR investment rule will identify the correct decision in many, but not all, situations. B) By setting the NPV equal to zero and solving for r, we find the IRR. C) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate. D) The simplest investment rule is the NPV investment rule. 8) Which of the...
1. We can get multiple IRRS when we draw an NPV profile for a project when: a. The project is riskless. b. The project requires a large investment. c. The project cash flows are uneven and change in sign. d. The project has a balloon payment. e. The opportunity cost of capital is high. 2. The length of time required for an investment to generate cash flows sufficient to recover its initial cost, without taking into account time value of...
Which of the following statements is FALSE? O A. The NPV will be positive if the IRR is less than the cost of capital O B. The IRR can be positive even if the NPV is negative OC. The NPV method is not affected by the multiple IRR problem. OD. If the multiple IRR problem does not exist, any independent project acceptable by NPV method will also be acceptable by the IRR method. O E. When IRR = k (the...
You are considering opening a new plant. The plant will cost $99.5 million upfront and will take one year to build. After that, it is expected to produce profits of $29.2 million at the end of every year of production. The cash flows are expected to last forever. Calculate the NPV of this investment opportunity if your cost of capital is 8.1%. Should you make the investment? Calculate the IRR. Does the IRR rule agree with the NPV rule? Years...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $2.5 million. Cash inflows of $13 million would occur at the end of Year 1. The land must be returned to its natural state at a cost of $11 million, payable at the end of Year 2. a. Plot the project's NPV profile. B NEY NPV Miliens of Dulles Men of Dole 200 3000WACC) 80 200 300 400 WACC) 200 300 400 WACC)...
4. Professor Wendy Smith has been offered the following opportunity: A law firm would like to retain her for an upfront payment of $49,000. In return, for the next year the firm would have access to eight hours of her time every month. As an alternative payment arrangement, the firm would pay Professor Smith's hourly rate for the eight hours each month. Smith's rate is $540 per hour and her opportunity cost of capital is 15% per year. What does...
MULTIPLE IRRS AND MIRR A mining company is deciding whether to open a strip mine, which costs $1.5 million. Cash inflows of $13.5 million would occur at the end of Year 1. The land must be returned to its natural state at a cost $11 million, payable at the end of Year 2. a. Plot the project's NPV profile. NPV i Millions of Dollas) NPV (Millions of Dollas) | *** ****** NPV Millions of Dollar) | ********* * *** non...
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