5564_1_Assignement5_partI - Assignment 3ex Question 1...

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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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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 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
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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 NPV = 0. d. NPV can be negative if the IRR is positive.
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