Question 14.4 Critique this statement: “NPV leads to better capital profitability than IRR because NPV leads...
Question 14.4 Critique this statement: “NPV leads to better capital profitability than IRR because NPV leads to better capital investment decisions”
Homework Answers
NPV and IRR are perfect substitute for each other to find the profitability of the project but in mutual exclusive , if one project is to be chosen, NPV is a better option to choose to.
The NPV method uses a reinvestment rate which is close to its cost of capital and the reinvestment assumptions of the NPV method much are more realistic than those with the IRR method.
Also NPV is more realistic in un-even cash flow scenarios, because uneven cash flow leads to Many IRR and it is difficult to determine the exact rate
Thus, NPV is a better indicator of evaluation than IRR
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Question 14.4 Critique this statement: “NPV leads to
better capital profitability than IRR because NPV leads...
Critique this statement: “NPV is a better measure of project profitability than IRR because it leads to better capital...
Critique this statement: “NPV is a better measure of project profitability than IRR because it leads to better capital investment decisions.” From a purely financial perspective, are there situations in which a business would be better off choosing a project with a shorter payback over one that has a larger NPV?
A project has a profitability index (PI) of 1.1. If the initial investment of $10,000. What do you know about the NPV and IRR? a) NPV may be smaller than zero b)NPV must be $1000 c) The IRR is the pre...
A project has a profitability index (PI) of 1.1. If the initial investment of $10,000. What do you know about the NPV and IRR? a) NPV may be smaller than zero b)NPV must be $1000 c) The IRR is the prevailing discount D) none of the above
Seminar Assessment Which is a better measure of capital budgeting, IRR or NPV. When would you...
Seminar Assessment Which is a better measure of capital budgeting, IRR or NPV. When would you use one method to the other?
Question 22 (3 points) If a layman asks you to explain the relationship between NPV and...
Question 22 (3 points) If a layman asks you to explain the relationship between NPV and IRR, you could answer correctly using this statement: both approaches always provide the same ranking of alternative investment projects if the NPV of a project is negative, the IRR must be greater than the cost of capital the IRR of a project is equal to the firm's cost of capital if the NPV of a project is $0. none of the above
3. Understanding the IRR and NPV 3. Understanding the IRR and NPV Aa Aa E The...
3. Understanding the IRR and NPV
3. Understanding the IRR and NPV Aa Aa E 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 Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers...
11-17: Calculate NPV, IRR, and which is a better project? 11-17 CAPITAL BUDGETING CRITERIA A company...
11-17: Calculate NPV, IRR, and which is a better project? 11-17 CAPITAL BUDGETING CRITERIA A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: Project A 300387$193 100 600 $600 850 180 Project B 405 134 $134 $134 $134 $134 $134 0
Ch 11: Assignment - The Basics of Capital Budgeting The internal rate of return (IRR) refers...
Ch 11: Assignment - The Basics of Capital Budgeting The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,450,000 Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however,...
If an investment project (with conventional cash flows) has IRR equal to the cost of capital,...
If an investment project (with conventional cash flows) has IRR equal to the cost of capital, the NPV for that project is: Positive Negative Zero Unable to determine Question 13 (2 points) The following are measures used by firms when making capital budgeting decisions except: Payback period Internal rate of return P/E ratio 1. Net present value
. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound...
. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,500,000. Blue Llama Mining Company has been basing capital budgeting decisions on a project’s NPV; however, its new CFO wants to start using the...
2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound...
2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Falcon Freight: Falcon Freight is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Falcon Freight has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR...
Seminar Assessment Which is a better measure of capital budgeting, IRR or NPV. When would you use one method to the other?
Question 22 (3 points) If a layman asks you to explain the relationship between NPV and IRR, you could answer correctly using this statement: both approaches always provide the same ranking of alternative investment projects if the NPV of a project is negative, the IRR must be greater than the cost of capital the IRR of a project is equal to the firm's cost of capital if the NPV of a project is $0. none of the above
3. Understanding the IRR and NPV
3. Understanding the IRR and NPV Aa Aa E 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 Green Caterpillar Garden Supplies Inc.: Last Tuesday, Green Caterpillar Garden Supplies Inc. lost a portion of its planning and financial data when both its main and its backup servers crashed. The company's CFO remembers...
11-17: Calculate NPV, IRR, and which is a better project? 11-17 CAPITAL BUDGETING CRITERIA A company has a 12% WACC and is considering two mutually exclusive investments (that cannot be repeated) with the following cash flows: Project A 300387$193 100 600 $600 850 180 Project B 405 134 $134 $134 $134 $134 $134 0
Ch 11: Assignment - The Basics of Capital Budgeting The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider this case of Blue Llama Mining Company: Blue Llama Mining Company is evaluating a proposed capital budgeting project (project Delta) that will require an initial investment of $1,450,000 Blue Llama Mining Company has been basing capital budgeting decisions on a project's NPV; however,...
If an investment project (with conventional cash flows) has IRR equal to the cost of capital, the NPV for that project is: Positive Negative Zero Unable to determine Question 13 (2 points) The following are measures used by firms when making capital budgeting decisions except: Payback period Internal rate of return P/E ratio 1. Net present value
2. Internal rate of return (IRR) The internal rate of return (IRR) refers to the compound annual rate of return that a project generates based on its up-front cost and subsequent cash flows. Consider the case of Falcon Freight: Falcon Freight is evaluating a proposed capital budgeting project (project Sigma) that will require an initial investment of $850,000. Falcon Freight has been basing capital budgeting decisions on a project's NPV; however, its new CFO wants to start using the IRR...
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