According to the IRR rule, the project should be accepted if the IRR is greater than the cost of capital. However, in cases where the project has multiple cash flows at different discount rates, or has uncertain cash flows, the IRR rule does not give correct results. On the other hand, NPV method always gives the correct results.
Hence, IRR cannot be always used reliably to choose between mutually exclusive projects
Answer --> False
Internal rate of return (IRR) can reliably be used to choose between mutually exclusive projects. O True False
What are some potential problems in using internal rate of return (IRR) for mutually exclusive projects?
1(a). (TRUE or FALSE?) If projects A & B are mutually exclusive and their NPVs are less than zero, accept both projects. 1(b). (TRUE or FALSE?) Internal rate of return method shows how many years take to recoup the initial investment. 1(c). (TRUE or FALSE?) Any time you consider investing in a project, you will not actually receive the IRR unless you can reinvest the project’s intervening cash flows at the IRR.
The IRR-Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table: firm's cost of capital is 15% a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs. b. Which project is preferred? a. The internal rate of return (IRR) of project X is %...
IRR—Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table: . The firm's cost of capital is 12%. a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs. b. Which project is preferred? 0 Data Table a. The internal rate of return (IRR) of...
IRR-Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capacity. The relevant cash flows for the projects are shown in the following table: B . The firm's cost of capital is 13%. a. Calculate the IRR for each of the projects. Assess the acceptability of each project on the basis of the IRRs. b. Which project is preferred? a. The internal rate of return (IRR) of project X...
Dropdown options first 2 blanks: (internal rate of return IRR,
required rate of return, modified internal rate of return MIRR)
Dropdown options 3rd blank: (NPV method, IRR method)
If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will agree. always Projects Y and...
For two mutually exclusive projects the project with the higher IRR is the correct selection. True or False
IRR: Mutually exclusive projects Bell Manufacturing is attempting to choose the better of two mutually exclusive projects for expanding the firm's warehouse capac ity. The relevant cash flows for the projects are shown in the following table. The firm's cost of capital is 15%. Initial investment (CF) Year (1) Project X Project Y $500,000 $325,000 Cash inflows (CF) $100,000 $140,000 120,000 120,000 150,000 95,000 190,000 70,000 250,000 50,000 a. Calculate the IRR to the nearest whole percent for each of...
True or false and why? 5. The internal rate of return (IRR) is such a discount rate that ensures the sum of present value of the cash outflows (or costs) with the sum of future value of the cash inflows. 6. A basic rule in capital budgeting is that if a projects NPV is larger than or equal to its IRR, then the project should be accepted.
Project selection ambiguity can arise if you rely on the internal rate of return (IRR) instead of the net present value (NPV) when A project's cash flows are non-conventional There are multiple IRRs. Projects are mutually exclusive All of the above