A) If the two projects' NPV profiles do not cross, then there will be a sharp conflict as to which one should be selected.
B) If the cost of capital is greater than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects. The same project will rank higher by both criteria.
C) If the cost of capital is less than the crossover rate, then the IRR and the NPV criteria will not result in a conflict between the projects. The same project will rank higher by both criteria.
D) For a conflict to exist between NPV and IRR, the initial investment cost of one project must exceed the cost of the other.
E) For a conflict to exist between NPV and IRR, one project must have an increasing stream of cash flows over time while the other has a decreasing stream. If both sets of cash flows are increasing or decreasing, then it would be impossible for a conflict to exist, even if one project is larger than the other.
G) B) and E)
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B) False
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A) 14.05%
B) 15.61%
C) 17.34%
D) 19.27%
E) 21.20%
G) C) and D)
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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, years ago, widely used, 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) The regular payback does not consider cash flows beyond the payback year, but the discounted payback overcomes this defect.
G) A) and B)
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A) 14.08%
B) 15.65%
C) 17.21%
D) 18.94%
E) 20.83%
G) B) and C)
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A) The longer a project's payback period, the more desirable the project is normally considered to be by this criterion.
B) One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money.
C) If a project's payback is positive, then the project should be rejected because it must have a negative NPV.
D) The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.
E) If a company uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the company will tend to reject projects with relatively short lives and accept long-lived projects, and this will cause its risk to increase over time.
G) All of the above
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A) $54.62
B) $57.49
C) $60.52
D) $63.54
E) $66.72
G) B) and E)
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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 its MIRR will be greater than the IRR.
D) To find a project's MIRR, we compound cash inflows at the regular IRR and then find the discount rate that causes the PV of the terminal value to equal the initial cost.
E) To find a project's MIRR, the textbook procedure compounds cash inflows at the WACC and then finds the discount rate that causes the PV of the terminal value to equal the initial cost.
G) A) and D)
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A) 2.08%
B) 2.31%
C) 2.57%
D) 2.82%
E) 3.10%
G) All of the above
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A) 1.42 years
B) 1.58 years
C) 1.75 years
D) 1.93 years
E) 2.12 years
G) B) and E)
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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.
G) A) and D)
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B) False
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A) $24.14
B) $26.82
C) $29.80
D) $33.11
E) $36.42
G) C) and D)
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B) False
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A) $185.90
B) $197.01
C) $208.11
D) $219.22
E) $230.32
G) B) and C)
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A) 2.31 years
B) 2.56 years
C) 2.85 years
D) 3.16 years
E) 3.52 years
G) A) and B)
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A) Project D probably has a higher IRR.
B) Project D is probably larger in scale than Project C.
C) Project C probably has a faster payback.
D) Project C probably has a higher IRR.
E) The crossover rate between the two projects is below 12%.
G) A) and B)
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A) You should reject both projects because they will both have negative NPVs under the new conditions.
B) You should delay a decision until you have more information on the projects, even if this means that a competitor might come in and capture this market.
C) You should recommend Project L, because at the new WACC it will have the higher NPV.
D) You should recommend Project S, because at the new WACC it will have the higher NPV.
E) You should recommend Project S because it has the higher IRR and will continue to have the higher IRR even at the new WACC.
G) B) and C)
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B) False
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A) -$59.03
B) -$56.08
C) -$53.27
D) -$50.61
E) -$48.08
G) A) and C)
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