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Which of the following statements is CORRECT?


A) If Project A's IRR exceeds Project B's, then A must have the higher NPV.
B) A project's MIRR can never exceed its IRR.
C) If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.
D) If the NPV is negative, the IRR must also be negative.
E) If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.

F) All of the above
G) C) and D)

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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) If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
B) The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC.
C) The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
D) If a project has normal cash flows and its IRR exceeds its WACC, then the project's NPV must be positive.
E) If Project A has a higher IRR than Project B, then Project A must have the lower NPV.

F) B) and D)
G) D) and E)

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The regular payback method is deficient in that it does not take account of cash flows beyond the payback period.The discounted payback method corrects this fault.

A) True
B) False

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Which of the following statements is CORRECT?


A) The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
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 firm's 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 project's payback varies as the cost of capital changes.

F) B) and C)
G) A) and C)

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Hart Corp.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected. Hart Corp.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected. A) 12.55% B) 13.21% C) 13.87% D) 14.56% E) 15.29%


A) 12.55%
B) 13.21%
C) 13.87%
D) 14.56%
E) 15.29%

F) All of the above
G) A) and E)

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The WACC for two mutually exclusive projects that are being considered is 8%.Project K has an IRR of 20% while Project R's IRR is 15%.The projects have the same NPV at the 8% current WACC.However, you believe that money costs and thus your WACC will also increase.You also think that the projects will not be funded until the WACC has increased, and their cash flows will not be affected by the change in economic conditions.Under these conditions, which of the following statements is CORRECT?


A) You should delay a decision until you have more information on the projects, even if this means that a competitor might come in and capture this market.
B) You should recommend Project R, because at the new WACC it will have the higher NPV.
C) You should recommend Project K, because at the new WACC it will have the higher NPV.
D) You should recommend Project K because it has the higher IRR and will continue to have the higher IRR even at the new WACC.
E) You should reject both projects because they will both have negative NPVs under the new conditions.

F) B) and C)
G) B) and E)

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Which of the following statements is CORRECT?


A) The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.
B) The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the risk-free rate.
C) The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period.
D) The IRR method does not consider all relevant cash flows, particularly cash flows beyond the payback period.
E) The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR.

F) A) and B)
G) None of the above

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Nichols Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected. Nichols Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected. A) 9.43% B) 9.91% C) 10.40% D) 10.92% E) 11.47%


A) 9.43%
B) 9.91%
C) 10.40%
D) 10.92%
E) 11.47%

F) B) and E)
G) A) and E)

Correct Answer

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Which of the following statements is CORRECT?


A) One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR.The NPV assumption is generally more appropriate.
B) One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does not.
C) One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.
D) Since cash flows under the IRR and MIRR are both discounted at the same rate (the WACC) , these two methods always rank mutually exclusive projects in the same order.
E) One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project's full life whereas IRR does not.

F) A) and D)
G) A) and E)

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Silverman Co.is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and not repeatable.If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. Silverman Co.is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and not repeatable.If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. A) $32.12 B) $35.33 C) $38.87 D) $40.15 E) $42.16


A) $32.12
B) $35.33
C) $38.87
D) $40.15
E) $42.16

F) B) and C)
G) C) and E)

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Lancaster Corp.is considering two equally risky, mutually exclusive projects, both of which have normal cash flows.Project A has an IRR of 11%, while Project B's IRR is 14%.When the WACC is 8%, the projects have the same NPV.Given this information, which of the following statements is CORRECT?


A) If the WACC is 9%, Project A's NPV will be higher than Project B's.
B) If the WACC is 6%, Project B's NPV will be higher than Project A's.
C) If the WACC is greater than 14%, Project A's IRR will exceed Project B's.
D) If the WACC is 9%, Project B's NPV will be higher than Project A's.
E) If the WACC is 13%, Project A's NPV will be higher than Project B's.

F) A) and B)
G) B) and E)

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Ellmann Systems is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected. Ellmann Systems is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected. A) $265.65 B) $278.93 C) $292.88 D) $307.52 E) $322.90


A) $265.65
B) $278.93
C) $292.88
D) $307.52
E) $322.90

F) A) and C)
G) A) and E)

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Modern Refurbishing Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative) , in which case it will be rejected. Modern Refurbishing Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative) , in which case it will be rejected. A) 13.13% B) 14.44% C) 15.89% D) 17.48% E) 19.22%


A) 13.13%
B) 14.44%
C) 15.89%
D) 17.48%
E) 19.22%

F) A) and E)
G) C) and D)

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Scott Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected. Scott Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected. A) $77.49 B) $81.56 C) $85.86 D) $90.15 E) $94.66


A) $77.49
B) $81.56
C) $85.86
D) $90.15
E) $94.66

F) A) and B)
G) B) and C)

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Projects A and B have identical expected lives and identical initial cash outflows (costs) .However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years.The two NPV profiles are given below: Projects A and B have identical expected lives and identical initial cash outflows (costs) .However, most of one project's cash flows come in the early years, while most of the other project's cash flows occur in the later years.The two NPV profiles are given below: Which of the following statements is CORRECT? A) More of Project B's cash flows occur in the later years. B) We must have information on the cost of capital in order to determine which project has the larger early cash flows. C) The NPV profile graph is inconsistent with the statement made in the problem. D) The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR. E) More of Project A's cash flows occur in the later years. Which of the following statements is CORRECT?


A) More of Project B's cash flows occur in the later years.
B) We must have information on the cost of capital in order to determine which project has the larger early cash flows.
C) The NPV profile graph is inconsistent with the statement made in the problem.
D) The crossover rate, i.e., the rate at which Projects A and B have the same NPV, is greater than either project's IRR.
E) More of Project A's cash flows occur in the later years.

F) B) and E)
G) D) and E)

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Under certain conditions, a project may have more than one IRR.One such condition is when, in addition to the initial investment at time = 0, a negative cash flow (or cost)occurs at the end of the project's life.

A) True
B) False

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Because "present value" refers to the value of cash flows that occur at different points in time, a series of present values of cash flows should not be summed to determine the value of a capital budgeting project.

A) True
B) False

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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 higher the WACC used to calculate the NPV, the lower the calculated NPV will be.
B) If a project's NPV is greater than zero, then its IRR must be less than the WACC.
C) If a project's NPV is greater than zero, then its IRR must be less than zero.
D) The NPVs of relatively risky projects should be found using relatively low WACCs.
E) A project's NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV) , then discounting the TV at the IRR to find its PV.

F) B) and D)
G) C) and E)

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Suzanne's Cleaners is considering a project that has the following cash flow data.What is the project's payback? Suzanne's Cleaners is considering a project that has the following cash flow data.What is the project's payback? A) 2.31 years B) 2.56 years C) 2.85 years D) 3.16 years E) 3.52 years


A) 2.31 years
B) 2.56 years
C) 2.85 years
D) 3.16 years
E) 3.52 years

F) D) and E)
G) A) and D)

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One advantage of the payback method for evaluating potential investments is that it provides information about a project's liquidity and risk.

A) True
B) False

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