Which of the following statements is correct? (a) The NPV profile graph for a normal project...
Which of the following statements is correct?
(a) The NPV profile graph for a normal project will generally have
a postive(upward) slope as the life of the project increase.
(b) An NPV profile graph is designed to give decision makers an
idea about how a project's risk varies with its life
(c) An NPV profile graph is designed to give decision makers an
idea about how a project's contribution to the firms value varies
with the cost of capital
(d) We cannot draw a project's NPV profile unless we know the
appropriate WACC for use in evaluating the project's NPV
(e) An NPV profile graph shows how a projects payback varies as the
cost of capital changes
Homework Answers
The correct answer is option C i.e. An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firms value varies with the cost of capital.
NPV profile of a project or investment is a graph of the project's NPV corresponding to different values of discount rates.
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Which of the following statements is correct?
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Which of the following statements is CORRECT? The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects. The net present value method (NPV) is generally regarded by academics...
A project's NPV profile graph intersects the Y-axis at 0% cost of capital and intersects the...
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< Back to Assignment Do No Harm: /2 Attempts: 5. NPV profiles An NPV profile plots...
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Which of the following statements is CORRECT? A) The NPV method is regarded by most academics as being the best indicator of a project's profitability, hence most academics recommend that firms use only this one method and disregard other methods. B) The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability. C) A project's NPV depends on the total amount of cash...
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A project's NPV profile graph intersects the Y-axis at 0% cost of capital and intersects the X-axis at the project's Select (where NPV = 0). The Y-axis intersection point represents the project's undiscounted NPV. The point at which 2 projects' profiles cross one another is the crossover rate. The crossover rate can be found by calculating the Select of the differences in the projects' cash flows (Project Delta). A Select NPV profile indicates that increases in the cost of capital...
Dropdown options: (accept, reject), (accept, reject), (IRR,
WACC)
An NPV profile plots a project's NPV at various costs of capital. A project's NPV profile is shown in the graph. Identify the range of costs of capital that a firm would use to accept and reject this project by responding to the drop-down choices below the graph. NPV (Dollars) A -200 0 2 4 6 8 10 12 14 16 18 20 COST OF CAPITAL (Percent) B The point at which...
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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...
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Which of the following statements is CORRECT? A) The NPV method is regarded by most academics as being the best indicator of a project's profitability, hence most academics recommend that firms use only this one method and disregard other methods. B) The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability. C) A project's NPV depends on the total amount of cash...
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