Q11 - University of Houston-Victoria FIN 6352 Financial...

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Financial Management FMQuiz11 Dr. Xavier Garza Gómez University of Houston-Victoria FIN 6352 Financial Management Review Quiz for Chapter 11 - Capital Budgeting True-False 1. Normal Projects Q and R have the same NPV when the discount rate is zero. However, Project Q has larger early cash flows than R. Therefore, we know that at all discount rates greater than zero, Project R will have a greater NPV than Q. a. True b. False 2. The NPV method's assumption that cash inflows are reinvested at the cost of capital is more reasonable than the IRR's assumption that cash flows are reinvested at the IRR. This makes the NPV method preferable to the IRR method. a. True b. False 3. If the IRR of normal Project X is greater than the IRR of mutually exclusive Project Y (also normal), we can conclude that the firm will select X rather than Y if X has a NPV > 0. a. True b. False Multiple Choice: Concepts 4. Project X has an internal rate of return of 20 percent. Project Y has an internal rate of return of 15 percent. Both projects have a positive net present value. Which of the fol- lowing statements is most correct? a. Project X must have a higher net present value than Project Y. b. If the two projects have the same WACC, Project X must have a higher net present value. c. Project X must have a shorter payback than Project Y. d. Both answers b and c are correct. e. None of the above answers is correct. 5. Which of the following statements is most correct? The modified IRR (MIRR) method: a. Always leads to the same ranking decision as NPV for independent projects. b.
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This note was uploaded on 11/23/2008 for the course FIN 6352 taught by Professor Gomez during the Spring '08 term at TAMU Intl..

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Q11 - University of Houston-Victoria FIN 6352 Financial...

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