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56. The elements that cause problems with the use of the IRR in projects that are mutually exclusive are: A. the discount rate and scale problems.B.timing and scale problems.C. the discount rate and timing problems.D. scale and reversing flow problems.E. timing and reversing flow problems.Difficulty level: MediumTopic: TIMING AND SCALE ISSUES WITH INTERNAL RATE OF RETURNType: CONCEPTS57. If there is a conflict between mutually exclusive projects due to the IRR, one should: A. drop the two projects immediately.B. spend more money on gathering information.C.depend on the NPV as it will always provide the most value.D. depend on the payback because it does not suffer from these same problems.E. None of the above.Difficulty level: MediumTopic: NET PRESENT VALUE DECISIONType: CONCEPTS5-51
Chapter 05 - Net Present Value and Other Investment Rules58. The profitability index is the ratio of: A. average net income to average investment.B. internal rate of return to current market interest rate.C. net present value of cash flows to internal rate of return.D. net present value of cash flows to return on equity.E.present value of cash flows to initial investment cost.Difficulty level: EasyTopic: PROFITABILITY INDEXType: CONCEPTS59. Which of the following statement is true? A.One must know the discount rate to compute the NPV of a project but one can compute the IRR without referring to the discount rate.B. One must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate.C. Payback accounts for time value of money.D. There will always be one IRR regardless of cash flows.E. Return on equity is the ratio of total assets to total net income.Difficulty level: MediumTopic: INVESTMENT DECISION RULESType: CONCEPTS60. Graham and Harvey (2001) found that ___ and ___ were the two most popular capital budgeting methods. A. Internal Rate of Return; Payback PeriodB.Internal Rate of Return; Net Present ValueC. Net Present Value; Payback PeriodD. Modified Internal Rate of Return; Internal Rate of ReturnE. Modified Internal Rate of Return; Net Present ValueDifficulty level: MediumTopic: CAPITAL BUDGETING PRACTICEType: CONCEPTS5-52
Chapter 05 - Net Present Value and Other Investment Rules61. What is the net present value of a project with the following cash flows and a required return of 12%?A. -$287.22B.-$177.62C. $177.62D. $204.36E. $287.22Difficulty level: EasyTopic: NET PRESENT VALUEType: PROBLEMS5-53
Chapter 05 - Net Present Value and Other Investment Rules