Filters
Question type
Study Flashcards

Which of the following statements best describes an NPV profile graph?


A) An NPV profile graph shows how a project's payback varies as the cost of capital changes.
B) The NPV profile graph for a normal project will generally have a positive (upward) slope as the life of the project increases.
C) An NPV profile graph is designed to give decision makers an idea about how a project's risk varies with its life.
D) An NPV profile graph is designed to give decision makers an idea about how a project's contribution to the firm's value varies with the cost of capital.

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

Correct Answer

verifed

verified

Which of the following statements is correct?


A) The MIRR and NPV decision criteria can never conflict.
B) The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.
C) One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on what is generally a more reasonable assumption about the reinvestment rate than the regular IRR.
D) The higher the WACC, the shorter the discounted payback period.

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

Correct Answer

verifed

verified

Which of the following statements best describes payback?


A) The regular payback method recognizes all cash flows over a project's life.
B) The discounted payback method recognizes all cash flows over a project's life, and it also adjusts these cash flows to account for the time value of money.
C) The regular payback method was widely used years ago, but virtually no companies even calculate the payback today.
D) The regular payback is useful as an indicator of a project's liquidity because it gives managers an idea of how long it will take to recover the funds invested in a project.

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

Correct Answer

verifed

verified

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

Correct Answer

verifed

verified

Projects S and L both have normal cash flows, and the projects have the same risk; hence, both are evaluated with the same WACC, 10%. However, S has a higher IRR than L. Which of the following statements is correct?


A) Project S must have a higher NPV than Project L.
B) If Project S has a positive NPV, then Project L must also have a positive NPV.
C) If the WACC falls, then each project's IRR will increase.
D) If Projects S and L have the same NPV at the current WACC, 10%, then Project L, the one with the lower IRR, would have a higher NPV if the WACC used to evaluate the projects declined.

E) B) and D)
F) None of the above

Correct Answer

verifed

verified

Rappaport Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected. Rappaport Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected. A) $211.29 B) $234.77 C) $260.85 D) $289.84


A) $211.29
B) $234.77
C) $260.85
D) $289.84

E) B) and D)
F) None of the above

Correct Answer

verifed

verified

The NPV method's assumption that cash inflows are reinvested at the cost of capital is more reasonable than the IRR's assumption that cash flows are reinvested at the IRR. This is an important reason that the NPV method is generally preferred over the IRR method.

A) True
B) False

Correct Answer

verifed

verified

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 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) None of the above
F) All of the above

Correct Answer

verifed

verified

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 MIRR is always greater than its regular IRR.
B) A project's MIRR is always less than its regular IRR.
C) If a project's IRR is greater than its WACC, then the MIRR will be less than the IRR.
D) If a project's IRR is greater than its WACC, then the MIRR will be greater than the IRR.

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

Correct Answer

verifed

verified

A company is choosing between two projects. The larger project has an initial cost of $100,000, annual cash flows of $30,000 for 5 years, and an IRR of 15.24%. The smaller project has an initial cost of $50,000, annual cash flows of $16,000 for 5 years, and an IRR of 16.63%. The projects are equally risky. Which of the following statements is correct?


A) Since the smaller project has the higher IRR, the two projects' NPV profiles cannot cross, and the smaller project's NPV will be higher at all positive values of WACC.
B) Since the smaller project has the higher IRR, the two projects' NPV profiles will cross, and the larger project will look better based on the NPV at all positive values of WACC.
C) Since the smaller project has the higher IRR but the larger project has the higher NPV at a zero discount rate, the two projects' NPV profiles will cross, and the larger project will have the higher NPV if the WACC is less than the crossover rate.
D) Since the smaller project has the higher IRR and the larger NPV at a zero discount rate, the two projects' NPV profiles will cross, and the larger smaller project will look better if the WACC is less than the crossover rate.

E) None of the above
F) All of the above

Correct Answer

verifed

verified

Adler Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected. Adler Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's projected NPV can be negative, in which case it will be rejected. A) $142.37 B) $149.49 C) $156.97 D) $164.82


A) $142.37
B) $149.49
C) $156.97
D) $164.82

E) None of the above
F) A) and B)

Correct Answer

verifed

verified

Sorenson Stores is considering a project that has the following cash flows: Sorenson Stores is considering a project that has the following cash flows: The project has a payback of 2.5 years, and the firm's cost of capital is 12%. What is the project's NPV? A) $577.68 B) $765.91 C) $1,049.80 D) $2,761.32 The project has a payback of 2.5 years, and the firm's cost of capital is 12%. What is the project's NPV?


A) $577.68
B) $765.91
C) $1,049.80
D) $2,761.32

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

Correct Answer

verifed

verified

Anderson Associates is considering two mutually exclusive projects that have the following cash flows: Anderson Associates is considering two mutually exclusive projects that have the following cash flows: At what cost of capital do the two projects have the same NPV? (That is, what is the crossover rate?) A) 11.20% B) 12.26% C) 13.03% D) 14.15% At what cost of capital do the two projects have the same NPV? (That is, what is the crossover rate?)


A) 11.20%
B) 12.26%
C) 13.03%
D) 14.15%

E) All of the above
F) B) and D)

Correct Answer

verifed

verified

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) The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.
B) If a project's NPV is greater than zero, then its IRR must be less than the WACC.
C) If a project's NPV is greater than zero, then its IRR must be less than zero.
D) The NPVs of relatively risky projects should be found using relatively low WACCs.

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

Correct Answer

verifed

verified

Which of the following statements best describes payback?


A) The shorter a project's payback period, the less desirable the project is normally considered to be by this criterion.
B) One drawback of the payback criterion for evaluating projects is that this method does not take account of cash flows beyond the payback period.
C) If a project's payback is positive, then the project should be accepted because it must have a positive NPV.
D) The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

E) B) and C)
F) A) and D)

Correct Answer

verifed

verified

Which of the following statements best describes normal cash flows?


A) If a project has "normal" cash flows, then its IRR must be positive.
B) If a project has "normal" cash flows, then its MIRR must be positive.
C) If a project has "normal" cash flows, then it will have exactly two real IRRs.
D) If a project has "normal" cash flows, then it can have only one real IRR, whereas a project with "non-normal" cash flows might have more than one real IRR.

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

Correct Answer

verifed

verified

Which of the following statements best describes the NPV?


A) The NPV method was once the favourite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability.
B) The NPV method is regarded by most academics as being the best indicator of a project's profitability; hence, most academics recommend that firms use only this one method.
C) A project's NPV depends on the total amount of cash flows the project produces, but because the cash flows are discounted at the WACC, it does not matter if the cash flows occur early or late in the project's life.
D) The NPV and IRR methods may give different recommendations regarding which of two mutually exclusive projects should be accepted, but they always give the same recommendation regarding the acceptability of a normal, independent project.

E) B) and C)
F) A) and D)

Correct Answer

verifed

verified

Babcock 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 projected NPV can be negative, in which case it will be rejected. Babcock 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 projected NPV can be negative, in which case it will be rejected. A) $54.62 B) $57.49 C) $60.52 D) $63.54


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

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

Correct Answer

verifed

verified

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) The lower the WACC used to calculate it, the lower the calculated NPV will be.
B) If a project's NPV is less than zero, then its IRR must be less than the WACC.
C) If a project's NPV is greater than zero, then its IRR must be less than zero.
D) The NPV of a relatively low risk project should be found using a relatively high WACC.

E) B) and D)
F) All of the above

Correct Answer

verifed

verified

Projects A and B are mutually exclusive and have normal cash flows. Project A has an IRR of 15% and Project 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) 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%.

E) All of the above
F) B) and C)

Correct Answer

verifed

verified

Showing 21 - 40 of 108

Related Exams

Exam 1

Overview of Financial Management and the Financial Environment

51 Questions

Exam 2

Financial Statements, Cash Flow, and Taxes

86 Questions

Exam 3

Analysis of Financial Statements

108 Questions

Exam 4

Time Value of Money

113 Questions

Exam 5

Financial Planning and Forecasting Financial Statements

44 Questions

Exam 6

Bonds, Bond Valuation, and Interest Rates

119 Questions

Exam 7

Risk, Return, and the Capital Asset Pricing Model

137 Questions

Exam 8

Stocks, Stock Valuation, and Stock Market Equilibrium

80 Questions

Exam 9

The Cost of Capital

80 Questions

Exam 11

Cash Flow Estimation and Risk Analysis

69 Questions

Exam 12

Capital Structure Decisions

79 Questions

Exam 13

Distributions to Shareholders: Dividends and Repurchases

65 Questions

Exam 14

Initial Public Offerings, Investment Banking, and Financial Restructuring

69 Questions

Exam 15

Lease Financing

39 Questions

Exam 16

Capital Market Financing: Hybrid and Other Securities

59 Questions

Exam 17

Working Capital Management and Short-Term Financing

118 Questions

Exam 18

Current Asset Management

114 Questions

Exam 19

Financial Options and Applications in Corporate Finance

28 Questions

Exam 20

Decision Trees, Real Options, and Other Capital Budgeting Techniques

19 Questions

Exam 21

Derivatives and Risk Management

14 Questions

Exam 22

International Financial Management

50 Questions

Exam 23

Corporate Valuation, Value-Based Management, and Corporate Governance

24 Questions

Exam 24

Mergers, Acquisitions, and Restructuring

67 Questions

Show Answer