AACSB: AnalyticBloom's: ApplicationDifficulty: BasicLearning Objective: 9-1 and 9-5Section: 9.1 and 9.5Topic: Net present value and internal rate of return9-83

Chapter 09 - Net Present Value and Other Investment Criteria65. You are considering an investment with the following cash flows. If the required rate of return for this investment is 15.5 percent, should you accept the investment based solely on the internal rate of return rule? Why or why not?A. Yes; The IRR exceeds the required return.B. Yes; The IRR is less than the required return.C. No; The IRR is less than the required return.D. No; The IRR exceeds the required return.E.You cannot apply the IRR rule in this case.Since the cash flow direction changes twice, there are two IRRs. Thus, the IRR rule cannot be used to determine acceptance or rejection.AACSB: AnalyticBloom's: ApplicationDifficulty: BasicLearning Objective: 9-5Section: 9.5Topic: Internal rate of return9-84

Chapter 09 - Net Present Value and Other Investment Criteria66. Blue Water Systems is analyzing a project with the following cash flows. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 14 percent? Why or why not?The modified cash flows will be:AACSB: AnalyticBloom's: ApplicationDifficulty: BasicLearning Objective: 9-6Section: 9.5Topic: Modified internal rate of return9-85

Chapter 09 - Net Present Value and Other Investment Criteria67. Sheakley Industries is considering expanding its current line of business and has developed the following expected cash flows for the project. Should this project be accepted based on the discounting approach to the modified internal rate of return if the discount rate is 13.4 percent? Why or why not?AACSB: AnalyticBloom's: ApplicationDifficulty: BasicLearning Objective: 9-6Section: 9.5Topic: Modified internal rate of return9-86

Chapter 09 - Net Present Value and Other Investment Criteria68. Cool Water Drinks is considering a proposed project with the following cash flows. Should this project be accepted based on the combined approach to the modified internal rate of return if both the discount rate and the reinvestment rate are 12.6 percent? Why or why not?AACSB: AnalyticBloom's: ApplicationDifficulty: BasicLearning Objective: 9-6Section: 9.5Topic: Modified internal rate of return9-87

Chapter 09 - Net Present Value and Other Investment Criteria

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