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Assignment 3ex
Question 1
Assume that you are comparing two mutually exclusive projects. Which of the following statements is most
correct?
Answer
2. Normal projects C and D are mutually exclusive. Project C has a higher net present value if the WACC is
less than 12 percent, whereas Project D has a higher net present value if the WACC exceeds 12 percent. Both
projects have a positive NPV if the WACC is 12 percent. Which of the following statements is most correct?
Answer
a. Project D has a higher internal
rate of return.
b. Project D is probably larger in
scale than Project C.
c. Project C probably has a faster
payback.
d. All of the statements above are
correct.
e. Answers a and c are correct.
3.
Two mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project
L are $15,000, while the undiscounted cash flows from Project S total $13,000. Their NPV profiles cross at a
discount rate of 10 percent. Which of the following statements best describes this situation?
Answer
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View Full DocumentTwo mutually exclusive projects each have a cost of $10,000. The total, undiscounted cash flows from Project
L are $15,000, while the undiscounted cash flows from Project S total $13,000. Their NPV profiles cross at a
discount rate of 10 percent. Which of the following statements best describes this situation?
Answer
a. The NPV and IRR methods will
select the same project if the cost of
capital is greater than 10 percent; for
example, 18 percent.
b. The NPV and IRR methods will
select the same project if the cost of
capital is less than 10 percent; for
example, 8 percent.
c. To determine if a ranking conflict
will occur between the two projects
the cost of capital is needed as well
as an additional piece of information.
d. Project L should be selected at
any cost of capital, because it has a
higher IRR.
e. Project S should be selected at
any cost of capital, because it has a
higher IRR.
4.
In comparing two mutually exclusive projects of equal size and equal life, which of the following statements is
most correct?
Answer
a. The project with the higher NPV
may not always be the project with
the higher IRR.
b. The project with the higher NPV
may not always be the project with
the higher MIRR.
c. The project with the higher IRR
may not always be the project with
the higher MIRR.
d. All of the answers above are
correct.
e. Answers a and c are correct.
5.
Which of the following statements is incorrect?
Answer
a. Assuming a project has normal
cash flows, the NPV will be positive
if the IRR is less than the cost of
capital.
b. If the multiple IRR problem does
not exist, any independent project
Which of the following statements is incorrect?
Answer
acceptable by the NPV method will
also be acceptable by the IRR
method.
c. If IRR = r (the cost of capital), then
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 Spring '10
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