ZuoTi.Pro
Question

If the net cash flows for a project change signs more than once a. The project...

If the net cash flows for a project change signs more than once

a. The project should never be accepted

b. The project may have more than one IRR; the highest IRR should be used to determine whether to accept the project

c. The project may have more than one IRR; the NPV method should be used to determine whether to accept the project

d. All projects should be ranked according to their payback period to determine which project should be accepted

e. There is no concern because the IRR method works perfectly well with multiple changes in sign for the project cash flows

business   finance   
0 0
Add a comment Improve this question Transcribed image text
Next > < Previous
Sort answers by oldest

Homework Answers

Answer #1

The above case relates to multiple IRR problem wherein a minimum of one cash inflow of a project is followed by cash outflow. Here the signs change more than once and they are said to be having non-normal cash flows. In such circumstances NPV method is used to solve this problem. Thus if the net cash flows of a project changes signs more than once, then project is said to have more than one IRR and the NPV method is used to determine whether to accept the project.

Hence the correct option is (c).

0 0
Add a comment
Know the answer?
Add Answer to:
If the net cash flows for a project change signs more than once a. The project...
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for? Ask your own homework help question. Our experts will answer your question WITHIN MINUTES for Free.
Similar Homework Help Questions

  • 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,...

  • 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...

  • Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with...

    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. 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...

  • Your firm is considering two projects with the following cash flows: Cash flows from project B...

    Your firm is considering two projects with the following cash flows: Cash flows from project B (£000) (500) 200 250 170 25 30 Year Cash flows from project A (£000) 0(500) 167 180 160 100 100 4 1. Calculate the ARR and payback rule 2. If the appropriate discount rate is 12%, rank the two projects 3. Which project is preferred if you rank by IRR? 4. Calculate the discount rate (r) for which the NPVs of both projects are...

  • Consider Project Theta, its time line of cash flows, and one of the project IRRs: Year....................0.............1............2............IRR...

    Consider Project Theta, its time line of cash flows, and one of the project IRRs: Year....................0.............1............2............IRR Cash Flow......($200).....$850....($700)......15% What is the best decision for Project Theta (accept or reject) if the project’s required rate of return is 15% and why? a. Accept the project because the payback is short b. Accept the project because the NPV is greater than zero c. Reject the project because the IRR is less than the required rate of return d. Reject the project because...

  • The cash flows associated with three independent projects (in millions) are as follows Net Cash Flows Proiect Alpha Project Beta Proiect Gamma Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $1,500,000...

    The cash flows associated with three independent projects (in millions) are as follows Net Cash Flows Proiect Alpha Project Beta Proiect Gamma Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 $1,500,000 $300,000 S500,000 S500,000 $400,000 $300,000 $400,000 $100,000 S200,000 $200,000 $100,000 S200,000 $7,500,000 $2,000,000 S3,000,000 S2,000,000 S1,500,000 $5,500,000 a) Calculate the payback period of each investment b) Which investments does the company accept if the cut-off payback period is three years? What if the cut-off is...

  • 1. You have the chance to participate in a project that produces the following cash flows:...

    1. You have the chance to participate in a project that produces the following cash flows: Cash Flows ($) C0 C1 C2 4,600 4,400 –10,800 a. The internal rate of return is 12.69%. If the opportunity cost of capital is 12%, what is the NPV of the project? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) NPV            $ __________. 2. Consider the following projects: Cash Flows...

  • Question 10 7.5 pts You are considering a project with conventional cash flows. The IRR is...

    Question 10 7.5 pts You are considering a project with conventional cash flows. The IRR is 15.7 percent, NPV is -$198, and the payback period is 3.92 years. Which one of the following statements is correct given this information? This project should be accepted based on the internal rate of return. The discount rate used in computing the net present value was less than 15.7 percent. The required rate of return must be greater than 15.7 percent. The discounted payback...

  • Suppose your firm is considering investing in a project with the cash flows shown below, that...

    Suppose your firm is considering investing in a project with the cash flows shown below, that the required rate of return on projects of this risk class is 12 percent, and that the maximum allowable payback and discounted payback statistic for the project are 2 and 3 years, respectively Time Cash Flow 0 1 2 3 4 5 6 -1,150 30570770770 370770 Use the NPV decision rule to evaluate this project, should it be accepted or rejected? Multiple Choice 0...

  • 1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value...

    1. Net present value (NPV) Evaluating cash flows with the NPV method The net present value (NPV) rule is considered one of the most common and preferred criteria that generally lead to good investment decisions. Consider this case: Suppose Hungry Whale Electronics is evaluating a proposed capital budgeting project (project Beta) that will require an initial investment of $3,000,000. The project is expected to generate the following net cash flows: Year Cash Flow Year 1 Year 2 $325,000 $450,000 $425,000...

ADVERTISEMENT
Free Homework Help App
Download From Google Play
Scan Your Homework
to Get Instant Free Answers
Need Online Homework Help?
Ask a Question
Get Answers For Free
Most questions answered within 3 hours.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT