The net present value (NPV) method implicitly assumes that the rate at which cash flows can be reinvested is the required rate of return, whereas the internal rate of return (IRR) method implies that the firm has the opportunity to reinvest at the project's IRR.
Group of answer choices
False
True
Answer : TRUE
NPV assumes that cashflows are reinvested at required rate of return and it is more realistic compared to IRR which assumes that reinvestment occurs at IRR rate.
We accept the project if NPV is positive that is it earns more than the minimum rate of required rate of return and thats why NPV is better method than IRR when we want to find how much wealth is generated for shareholders. (Thumbs up please)
The net present value (NPV) method implicitly assumes that the rate at which cash flows can...
Help and verified and be clear. The net present value (NPV) and internal rate of return (IRR) methods of investment analysis are interrelated and are sometimes used together to make capital budgeting decisions. Consider the case of Blue Hamster Manufacturing Inc.: Last Tuesday, Blue Hamster Manufacturing Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers that the internal rate of return (IRR) of Project Lambda is...
If mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV) and internal rate of return (IRR) methods agree. Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. NPV (Dollars) 800 Year Project Y Project Z 0 -$1,500 -$1,500 1 $200 $900 2 $400 $600 $600 $300 4 $1,000 $200 Project Y Project 2 If the weighted average cost of capital (WACC) for each project is...
4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $550,000. The...
4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a retun equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR Consider the following situation: Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $600,000. The project's...
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. 4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the...
4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Grey Fox Aviation Company is analyzing a project that requires an initial investment of $550,000. The...
4. Modified internal rate of return (MIRR) The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Blue Llama Mining Company is analyzing a project that requires an initial investment of $400,000. The...
If an independent project with conventional, or normal, cash flows is being analyzed, the net present value (NPV) and internal rate of return (IRR) methods agree Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. NPV (Dollars Year Project Y Project Z 800 -$1,500 -$1,500 0 $200 $900 1 600 Project Y $400 $600 2 $600 $300 400 $1,000 $200 4 Project Z 200 If the weighted average cost of capital...
If an independent project with conventional, or normal, cash flows is being analyzed, the net present value (NPV) and internal rate of return (IRR) methods agree. Projects W and X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. NPV (Dollars) 800 0 -$1,00 Year Project W -$1,000 1 $200 2 $350 $400 $600 Project x -$1,500 $350 $500 $600 $750 Project X Project W If the weighted average cost of capital (WACC) for each...
4. Modified internal rate of return (MIRR) Aa Aa The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project's IRR. Consider the following situation: Grey Fox Aviation Company is analyzing a project that requires an initial investment of...