b Overcomes the problem of multiple rates of return c Compounds cash flows at

B overcomes the problem of multiple rates of return c

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b. Overcomes the problem of multiple rates of return. c. Compounds cash flows at the cost of capital. d. Overcomes the problems of cash flow timing and project size that lead to criticism of the regular IRR method. e. Answers b and c are correct. Page 12 Chapter 12: Capital Budgeting: Decision Criteria
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(Comp.) Miscellaneous concepts Answer: e Diff: M 50 . Which of the following statements is most correct? a. The IRR method is appealing to some managers because it produces a rate of return upon which to base decisions rather than a dollar amount like the NPV method. b. The discounted payback method solves all the problems associated with the payback method. c. For independent projects, the decision to accept or reject will al- ways be the same using either the IRR method or the NPV method. d. All of the statements above are correct. e. Statements a and c are correct. (Comp.) Miscellaneous concepts Answer: a Diff: M 51 . Which of the following statements is most correct? a. One of the disadvantages of choosing between mutually exclusive projects on the basis of the discounted payback method is that you might choose the project with the faster payback period but with the lower total return. b. Multiple IRRs can occur in cases when project cash flows are normal, but they are more common in cases where project cash flows are non- normal. c. When choosing between mutually exclusive projects, managers should accept all projects with IRRs greater than the weighted average cost of capital. d. All of the statements above are correct. e. Two of the statements above are correct. (Comp.) NPV, IRR, and MIRR Answer: b Diff: M 52 . Assume a project has normal cash flows (that is, the initial cash flow is negative, and all other cash flows are positive). Which of the fol- lowing statements is most correct? a. All else equal, a project's IRR increases as the cost of capital de- clines. b. All else equal, a project's NPV increases as the cost of capital de- clines. c. All else equal, a project's MIRR is unaffected by changes in the cost of capital. d. Answers a and b are correct. e. Answers b and c are correct. Chapter 12: Capital Budgeting: Decision Criteria Page 13
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(Comp.) NPV, IRR, and payback Answer: e Diff: M 53 . 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 posi- tive net present value. Which of the following statements is most cor- rect? 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. (Comp.) NPV, IRR, and MIRR Answer: a Diff: M 54 . Which of the following statements is most correct?
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