Question 1

When considering two mutually exclusive projects,the firm should always select the project whose internal rate of return is the highest,provided the projects have the same initial cost.This statement is true regardless of whether the projects can be repeated or not.

Accepted Answer

A) True 
 B)False

Question 2

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.

Accepted Answer

A)   A project's regular IRR is found by compounding the cash inflows at the WACC to find the terminal value (TV) ,then discounting this TV at the WACC.
B)   A project's regular IRR is found by discounting the cash inflows at the WACC to find the present value (PV) ,then compounding this PV to find the IRR.
C)   If a project's IRR is greater than the WACC,then its NPV must be negative.
D)   To find a project's IRR,we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project's costs.
E)   To find a project's IRR,we must find a discount rate that is equal to the WACC.F) None of the above
G) B) and E)

Question 3

Westchester 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?

Accepted Answer

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

Question 4

Conflicts between two mutually exclusive projects occasionally occur,where the NPV method ranks one project higher but the IRR method puts the other one first.In theory,such conflicts should be resolved in favor of the project with the higher IRR.

Accepted Answer

A) True 
 B)False

Question 5

Malholtra Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative) ,in which case it will be rejected.

Accepted Answer

A)   14.45%
B)   12.92%
C)   12.57%
D)   11.28%
E)   11.75%F) A) and B)
G) A) and C)

Question 6

Cornell Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Accepted Answer

A)   -$106.10
B)   -$132.63
C)   -$139.26
D)   -$125.99
E)   -$165.78F) A) and B)
G) A) and C)

Question 7

Simkins Renovations Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative) ,in which case it will be rejected.  ​

Accepted Answer

A)   29.04%
B)   32.63%
C)   24.55%
D)   30.83%
E)   29.94%F) A) and B)
G) None of the above

Exam 11: The Basics of Capital Budgeting

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.

Correct Answer
verified

Westchester 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?

Correct Answer
verified

When considering two mutually exclusive projects,the firm should always select the project whose internal rate of return is the highest,provided the projects have the same initial cost.This statement is true regardless of whether the projects can be repeated or not.

Correct Answer
verified

Cornell Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Correct Answer
verified

Malholtra Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative) ,in which case it will be rejected.

Correct Answer
verified

Simkins Renovations Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative) ,in which case it will be rejected.

Correct Answer
verified

Conflicts between two mutually exclusive projects occasionally occur,where the NPV method ranks one project higher but the IRR method puts the other one first.In theory,such conflicts should be resolved in favor of the project with the higher IRR.

Correct Answer
verified

Exam 11: The Basics of Capital Budgeting

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.

Correct AnswerverifiedShow Answer

Westchester 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?

Correct AnswerverifiedShow Answer

When considering two mutually exclusive projects,the firm should always select the project whose internal rate of return is the highest,provided the projects have the same initial cost.This statement is true regardless of whether the projects can be repeated or not.

Correct AnswerverifiedShow Answer

Cornell Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's projected NPV can be negative,in which case it will be rejected.

Correct AnswerverifiedShow Answer

Malholtra Inc.is considering a project that has the following cash flow and WACC data.What is the project's MIRR? Note that a project's projected MIRR can be less than the WACC (and even negative) ,in which case it will be rejected.

Correct AnswerverifiedShow Answer

Simkins Renovations Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative) ,in which case it will be rejected. ​

Correct AnswerverifiedShow Answer

Conflicts between two mutually exclusive projects occasionally occur,where the NPV method ranks one project higher but the IRR method puts the other one first.In theory,such conflicts should be resolved in favor of the project with the higher IRR.

Correct AnswerverifiedShow Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Simkins Renovations Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC (and even negative) ,in which case it will be rejected.

Correct Answer
verified

Correct Answer
verified