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Kosovski Company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and are not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under some conditions choosing projects on the basis of the IRR will cause $0.00 value to be lost. Kosovski Company is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and are not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under some conditions choosing projects on the basis of the IRR will cause $0.00 value to be lost. A) $11.45 B) $12.72 C) $14.63 D) $16.82 E) $19.35


A) $11.45
B) $12.72
C) $14.63
D) $16.82
E) $19.35

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

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Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative) , in which case it will be rejected. Ingram Electric Products is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative) , in which case it will be rejected. A) 8.86% B) 9.84% C) 10.94% D) 12.15% E) 13.50%


A) 8.86%
B) 9.84%
C) 10.94%
D) 12.15%
E) 13.50%

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

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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. 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%


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

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

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Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method ranks the other one first. In theory, such conflicts should be resolved in favor of the project with the higher positive IRR.

A) True
B) False

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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. 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


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

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

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Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.


A) If a project's IRR is equal to its WACC, then, under all reasonable conditions, the project's NPV must be negative.
B) If a project's IRR is equal to its WACC, then under all reasonable conditions, the project's IRR must be negative.
C) If a project's IRR is equal to its WACC, then under all reasonable conditions the project's NPV must be zero.
D) There is no necessary relationship between a project's IRR, its WACC, and its NPV.
E) When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high.

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

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Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? Fernando Designs is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? A) 1.88 years B) 2.09 years C) 2.29 years D) 2.52 years


A) 1.88 years
B) 2.09 years
C) 2.29 years
D) 2.52 years

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

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Cornell 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 expected NPV can be negative, in which case it will be rejected. Cornell 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 expected NPV can be negative, in which case it will be rejected. A) $ 92.37 B) $ 96.99 C) $101.84 D) $106.93 E) $112.28


A) $ 92.37
B) $ 96.99
C) $101.84
D) $106.93
E) $112.28

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

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Which of the following statements is CORRECT?


A) The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability.
B) If the cost of capital declines, this lowers a project's NPV.
C) 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.
D) 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.
E) 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.

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

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Maxwell Feed & Seed 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. Maxwell Feed & Seed 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) 2.08% B) 2.31% C) 2.57% D) 2.82% E) 3.10%


A) 2.08%
B) 2.31%
C) 2.57%
D) 2.82%
E) 3.10%

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

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Taggart Inc. is considering a project that has the following cash flow data. What is the project's payback? Taggart Inc. is considering a project that has the following cash flow data. What is the project's payback? A) 1.86 years B) 2.07 years C) 2.30 years D) 2.53 years E) 2.78 years


A) 1.86 years
B) 2.07 years
C) 2.30 years
D) 2.53 years
E) 2.78 years

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

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A basic rule in capital budgeting is that If a project's NPV exceeds its IRR, then the project should be accepted.

A) True
B) False

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Stern Associates is considering a project that has the following cash flow data. What is the project's payback? Stern Associates is considering a project that has the following cash flow data. What is the project's payback? A) 2.31 years B) 2.56 years C) 2.85 years D) 3.16 years E) 3.52 years


A) 2.31 years
B) 2.56 years
C) 2.85 years
D) 3.16 years
E) 3.52 years

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

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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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Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. Nast Inc. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher MIRR rather than the one with the higher NPV, how much value will be forgone? Note that under some conditions choosing projects on the basis of the MIRR will cause $0.00 value to be lost. A) $32.12 B) $35.33 C) $38.87 D) $40.15 E) $42.16


A) $32.12
B) $35.33
C) $38.87
D) $40.15
E) $42.16

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

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Data Computer Systems 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. Data Computer Systems 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) 9.70% B) 10.78% C) 11.98% D) 13.31% E) 14.64%


A) 9.70%
B) 10.78%
C) 11.98%
D) 13.31%
E) 14.64%

F) A) and C)
G) None of the above

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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) 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.

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

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Moerdyk & Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the project with the higher IRR will also have the higher NPV, i.e., no conflict will exist. Moerdyk & Co. is considering Projects S and L, whose cash flows are shown below. These projects are mutually exclusive, equally risky, and not repeatable. If the decision is made by choosing the project with the higher IRR, how much value will be forgone? Note that under certain conditions choosing projects on the basis of the IRR will not cause any value to be lost because the project with the higher IRR will also have the higher NPV, i.e., no conflict will exist. A) $5.47 B) $6.02 C) $6.62 D) $7.29 E) $7.82


A) $5.47
B) $6.02
C) $6.62
D) $7.29
E) $7.82

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

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Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected. Lasik Vision Inc. recently analyzed the project whose cash flows are shown below. However, before Lasik decided to accept or reject the project, the Federal Reserve changed interest rates and therefore the firm's WACC. The Fed's action did not affect the forecasted cash flows. By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's expected NPV can be negative, in which case it should be rejected. A) -$59.03 B) -$56.08 C) -$53.27 D) -$50.61 E) -$48.08


A) -$59.03
B) -$56.08
C) -$53.27
D) -$50.61
E) -$48.08

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

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Harry's Inc. 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. Harry's Inc. 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) $105.89 B) $111.47 C) $117.33 D) $123.51 E) $130.01


A) $105.89
B) $111.47
C) $117.33
D) $123.51
E) $130.01

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

Correct Answer

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