Which of the following is true about comparing NPV and IRR rule? (a) NPV is strictly...
Which of the following is true about comparing NPV and IRR rule?
(a) NPV is strictly better than IRR so no CFO or CEO in the real world actually uses IRR.
(b) No matter what the cash flow patterns are, with unlimited resources and same project lives, we can always choose the one with highest NPV
among mutually exclusive projects.
(c)When mutually exclusive projects have different lives, we should use IRR rather than NPV rule.
(d) NPV rule guarantees correct decision for mutually exclusive project with different lives in any case.
Homework Answers
And is (b)
Generally both NPV and IRR give the same result but when cash flows are mix of negative and positive then NPV gives better information. As IRR assumed all the cash amount are re invested at IRR which isn't correct. NPV assumed cash flow are re invested at firm's cost of capital which is correct.
IRR gives result in% , which is easy to compare multiple project rather dollar amount, so manager prefer IRR but results are same
Add Answer to:
Which of the following is true about comparing NPV and IRR
rule?
(a) NPV is strictly...
Show all work and highlight final answer. Do not answer the question unless you answer all...
Show all work and highlight final answer. Do not answer the
question unless you answer all of them.
4. Which one of the following will decrease the net present value of a project? (a) Increasing the value of each of the project's discounted cash inflows (b) Moving each of the cash inflows forward to a sooner time period (c) Decreasing the required discount rate (d) Increasing the project's initial cost at time zero 5. Which of the following is true...
When might the IRR rule provide different guidance regarding project selection than the NPV rule? a)...
When might the IRR rule provide different guidance regarding
project selection than the NPV rule?
a) When a project has net expenditures (costs) that occur after
positive cash inflows.
b) When a project has two or more years of initial net
expenditures, followed only by cash inflows.
c) When a project has multiple IRRs.
d) When deciding between
mutually exclusive projects with different initial investment
amounts.
When might the IRR rule provide different guidance regarding project selection than the NPV...
Which of the following statement of IRR analysis is TRUE? A. A project can only have...
Which of the following statement of IRR analysis is TRUE? A. A project can only have one IRR. B. If a project has two IRR, then we will accept the project when the required rate of return is smaller than both IRR. C. When evaluating mutually exclusive projects, the project with highest IRR also has the highest NPV. D. When calculating IRR of a project, we need both cash flows and required rate of return of the project. E. For...
When choosing among mutually exclusive projects we choose the project with the highest NPV. True or...
When choosing among mutually exclusive projects we choose the project with the highest NPV. True or False
If the projects were independent, which project(s) would be accepted according to the IRR method? a)...
If the projects were independent, which project(s) would be
accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
If the projects were mutually exclusive, which project(s) would
be accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
The reason is
a) TheNPV and IRR approaches use the same reinvestment rate
assumption and so both approaches reach the same...
1. A. Which of the following mutually exclusive projects should be accepted? Project NPV Payback IRR...
1. A. Which of the following mutually exclusive projects should be accepted? Project NPV Payback IRR A +42,176 2 years, +$10,500 16.4% B +39,090 2 years, +9,670 15.8% C +41,894 3 years, +16,620 13.2% D +43,778 3 years, +11,625 14.9% E +38,952 2 years, +15,475 15.9% B. What is the Payback Period of a project with an initial cost of $75,000, Year 1 cash flow of $20,000 which increases by 5% each year? If the Payback cutoff is 3 years,...
9. What is the intuition behind the IRR rule? Under what conditions will the IRR rule...
9. What is the intuition behind the IRR rule? Under what conditions will the IRR rule and the NPV rule give the same accept/reject decision? 10. Explain what is meant by ‘mutually exclusive projects’ and why it is generally a bad idea to use IRR to choose between mutually exclusive projects? 11. Using an example of each, explain sunk costs and opportunity costs. Which of these costs should be included in incremental cash flows and which should be excluded? 12....
NPV versus IRR Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow...
NPV versus IRR Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$77,500 -$77,500 43,000 21,500 29,000 28,000 23,000 34,000 21,000 41,000 a. What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose...
Which of the following is FALSE about IRR? Multiple Choice 0 It ALWAYS returns a more...
Which of the following is FALSE about IRR? Multiple Choice 0 It ALWAYS returns a more reliable result than the Payback Period method. 0 Unlike NPV, it's result is expressed as a percentage. 0 It is completely unusable when non-conventional cash flows are present. it is comple 0 It is a better reporting tool than decision-making tool. it is a better 0 When looking at mutually exclusive projects, it may give a different decision indication than NPV, and should not...
Capital Budgeting Decision Criteria: IRR IRR A project's internal rate of return (IRR) is the -Select-compound...
Capital Budgeting Decision Criteria: IRR IRR A project's internal rate of return (IRR) is the -Select-compound ratediscount raterisk-free rateCorrect 1 of Item 1 that forces the PV of its inflows to equal its cost. The IRR is an estimate of the project's rate of return, and it is comparable to the -Select-YTMcoupongainCorrect 2 of Item 1 on a bond. The equation for calculating the IRR is: CFt is the expected cash flow in Period t and cash outflows are treated...
Show all work and highlight final answer. Do not answer the
question unless you answer all of them.
4. Which one of the following will decrease the net present value of a project? (a) Increasing the value of each of the project's discounted cash inflows (b) Moving each of the cash inflows forward to a sooner time period (c) Decreasing the required discount rate (d) Increasing the project's initial cost at time zero 5. Which of the following is true...
When might the IRR rule provide different guidance regarding
project selection than the NPV rule?
a) When a project has net expenditures (costs) that occur after
positive cash inflows.
b) When a project has two or more years of initial net
expenditures, followed only by cash inflows.
c) When a project has multiple IRRs.
d) When deciding between
mutually exclusive projects with different initial investment
amounts.
When might the IRR rule provide different guidance regarding project selection than the NPV...
If the projects were independent, which project(s) would be
accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
If the projects were mutually exclusive, which project(s) would
be accepted according to the IRR method?
a) Neither
b) Project A
c) Project B
d) Both Projects A or B
The reason is
a) TheNPV and IRR approaches use the same reinvestment rate
assumption and so both approaches reach the same...
NPV versus IRR Piercy, LLC, has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) -$77,500 -$77,500 43,000 21,500 29,000 28,000 23,000 34,000 21,000 41,000 a. What is the IRR for each of these projects? If you apply the IRR decision rule, which project should the company accept? Is this decision necessarily correct? b. If the required return is 11 percent, what is the NPV for each of these projects? Which project will you choose...
Which of the following is FALSE about IRR? Multiple Choice 0 It ALWAYS returns a more reliable result than the Payback Period method. 0 Unlike NPV, it's result is expressed as a percentage. 0 It is completely unusable when non-conventional cash flows are present. it is comple 0 It is a better reporting tool than decision-making tool. it is a better 0 When looking at mutually exclusive projects, it may give a different decision indication than NPV, and should not...
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