Ch 11 Problems\/Solutions - Chapter 11 Sample Problems i Which of the following statements is most correct a If a projects internal rate of return(IRR

Ch 11 Problems/Solutions - Chapter 11 Sample Problems i...

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Chapter 11 Sample Problems i.Which of the following statements is most correct? a.If a project’s internal rate of return (IRR) exceeds the cost of capital, then the project’s net present value (NPV) must be positive.b.If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.c.The IRR calculation implicitly assumes that all cash flows are reinvested at a rateof return equal to the cost of capital.d.Statements a and c are correct.e.None of the statements above is correct. ii.A capital investment’s internal rate of return iii.Coughlin Motors is considering a project with the following expected cash flows:ProjectYearCash Flow0-\$700 million1200 million2370 million3225 million4700 millionThe project’s WACC is 10 percent. What is the project’s discounted payback?
iv.A company is analyzing two mutually exclusive projects, S and L, whose cash flows are shown below:Years0123||||S-1,1001,00035050L-1,10003001,500The company’s cost of capital is 12 percent, and it can obtain an unlimited amount ofcapital at that cost. What is the regular IRR (not MIRR) of the better project, that is, the project that the company should choose if it wants to maximize its stock price?