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Simms Corp.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected.


A) 12.55%
B) 13.21%
C) 13.87%
D) 14.56%
E) 15.29%

F) C) and D)
G) A) and C)

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Project S has a pattern of high cash flows in its early life, while Project L has a longer life, with large cash flows late in its life.Neither has negative cash flows after Year 0, and at the current cost of capital, the two projects have identical NPVs.Now suppose interest rates and money costs decline.Other things held constant, this change will cause L to become preferred to S.

A) True
B) False

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Projects A and B are mutually exclusive and have normal cash flows.Project A has an IRR of 15% and B's IRR is 20%.The company's WACC is 12%, and at that rate Project A has the higher NPV.Which of the following statements is CORRECT?


A) The crossover rate for the two projects must be less than 12%.
B) Assuming the timing pattern of the two projects' cash flows is the same, Project B probably has a higher cost (and larger scale) .
C) Assuming the two projects have the same scale, Project B probably has a faster payback than Project A.
D) The crossover rate for the two projects must be 12%.
E) Since B has the higher IRR, then it must also have the higher NPV if the crossover rate is less than the WACC of 12%.

F) All of the above
G) A) and E)

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firm should never accept a project if its acceptance would lead to an increase in the firm's cost of capital

A) True
B) False

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Other things held constant, an increase in the cost of capital will result in a decrease in a project's IRR.

A) True
B) False

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Thorley Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected.


A) 9.43%
B) 9.91%
C) 10.40%
D) 10.92%
E) 11.47%

F) B) and D)
G) A) and B)

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World Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.


A) $41.25
B) $45.84
C) $50.93
D) $56.59
E) $62.88

F) B) and C)
G) B) and E)

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Normal Projects S and L have the same NPV when the discount rate is zero.However, Project S's cash flows come in faster than those of L.Therefore, we know that at any discount rate greater than zero, L will have the higher NPV.

A) True
B) False

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Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.


A) A project's regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV) , then discounting the TV at the WACC.
B) A project's regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV) , then discounting the TV to find the IRR.
C) If a project's IRR is smaller than the WACC, then its NPV will be positive.
D) A project's IRR is the discount rate that causes the PV of the inflows to equal the project's cost.
E) If a project's IRR is positive, then its NPV must also be positive.

F) A) and D)
G) B) and E)

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Which of the following statements is CORRECT?


A) One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project's full life whereas IRR does not.
B) One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR.The NPV assumption is generally more appropriate.
C) One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does not.
D) One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.
E) Since cash flows under the IRR and MIRR are both discounted at the same rate (the WACC) , these two methods always rank mutually exclusive projects in the same order.

F) C) and D)
G) B) and E)

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firm is considering Projects S and L, whose cash flows are shown below.These projects are mutually exclusive, equally risky, and not repeatable.The CEO wants to use the IRR criterion, while the CFO favors the NPV method.You were hired to advise the firm on the best procedure.If the wrong decision criterion is used, how much potential value would the firm lose? WACC: 6.00% Year 0 1 2 3 4 CFS -$1,025 $380 $380 $380 $380 CFL -$2,150 $765 $765 $765 $765


A) $188.68
B) $198.61
C) $209.07
D) $219.52
E) $230.49

F) D) and E)
G) A) and C)

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Under certain conditions, a project may have more than one IRR.One such condition is when, in addition to the initial investment at time = 0, a negative cash flow (or cost) occurs at the end of the project's life.

A) True
B) False

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considering two mutually exclusive projects, the firm should always select the project whose internal rate of return is the highest, provided the projects have the same initial cost.This statement is true regardless of whether the projects can be repeated or not.

A) True
B) False

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a project with one initial cash outflow followed by a series of positive cash inflows, the modified IRR (MIRR) method involves compounding the cash inflows out to the end of the project's life, summing those compounded cash flows to form a terminal value (TV), and then finding the discount rate that causes the PV of the TV to equal the project's cost.

A) True
B) False

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Simkins Renovations Inc.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative) , in which case it will be rejected.


A) 13.13%
B) 14.44%
C) 15.89%
D) 17.48%
E) 19.22%

F) B) and D)
G) B) and C)

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Tuttle Enterprises is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected.


A) $77.49
B) $81.56
C) $85.86
D) $90.15
E) $94.66

F) A) and C)
G) C) and D)

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McCall Manufacturing has a WACC of 10%.The firm is considering two normal, equally risky, mutually exclusive, but not repeatable projects.The two projects have the same investment costs, but Project A has an IRR of 15%, while Project B has an IRR of 20%.Assuming the projects' NPV profiles cross in the upper right quadrant, which of the following statements is CORRECT?


A) Each project must have a negative NPV.
B) Since the projects are mutually exclusive, the firm should always select Project B.
C) If the crossover rate is 8%, Project B will have the higher NPV.
D) Only one project has a positive NPV.
E) If the crossover rate is 8%, Project A will have the higher NPV.

F) A) and B)
G) B) and E)

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Projects S and L both have an initial cost of $10,000, followed by a series of positive cash inflows.Project S's undiscounted net cash flows total $20,000, while L's total undiscounted flows are $30,000.At a WACC of 10%, the two projects have identical NPVs.Which project's NPV is more sensitive to changes in the WACC?


A) Project S.
B) Project L.
C) Both projects are equally sensitive to changes in the WACC since their NPVs are equal at all costs of capital.
D) Neither project is sensitive to changes in the discount rate, since both have NPV profiles that are horizontal.
E) The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative IRRs.

F) B) and C)
G) A) and E)

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Warnock Inc.is considering a project that has the following cash flow and WACC data.What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.


A) $54.62
B) $57.49
C) $60.52
D) $63.54
E) $66.72

F) A) and D)
G) C) and D)

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Which of the following statements is CORRECT?


A) If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.
B) If Project A's IRR exceeds Project B's, then A must have the higher NPV.
C) A project's MIRR can never exceed its IRR.
D) If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.
E) If the NPV is negative, the IRR must also be negative.

F) All of the above
G) A) and C)

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