A) For mutually exclusive projects with normal cash flows,the NPV and MIRR methods can never conflict,but their results could conflict with the discounted payback and the regular IRR methods.
B) Multiple IRRs can exist,but not multiple MIRRs.This is one reason some people favor the MIRR over the regular IRR.
C) If a firm uses the discounted payback method with a required payback of 4 years,then it will accept more projects than if it used a regular payback of 4 years.
D) The percentage difference between the MIRR and the IRR is equal to the project's cost of capital.
E) The NPV,IRR,MIRR,and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects.
G) C) and D)
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A) If the cost of capital is 9%,Project A's NPV will be higher than Project B's.
B) If the cost of capital is 6%,Project B's NPV will be higher than Project A's.
C) If the cost of capital is greater than 14%,Project A's IRR will exceed Project B's.
D) If the cost of capital is 9%,Project B's NPV will be higher than Project A's.
E) If the cost of capital is 13%,Project A's NPV will be higher than Project B's.
G) None of the above
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B) False
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B) False
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B) False
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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) B) and D)
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B) False
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A) More of Project B's cash flows occur in the later years.
B) We must have information on the cost of capital in order to determine which project has the larger early cash flows.
C) The NPV profile graph is inconsistent with the statement made in the problem.
D) The crossover rate,i.e. ,the rate at which Projects A and B have the same NPV,is greater than either project's IRR.
E) More of Project A's cash flows occur in the later years.
G) B) and E)
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B) False
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B) False
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A) 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.
B) 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.
C) For a conflict to exist between NPV and IRR,the initial investment cost of one project must exceed the cost of the other.
D) 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.
E) If the two projects' NPV profiles do not cross,then there will be a sharp conflict as to which one should be selected.
G) A) and B)
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A) 1.86 years
B) 2.07 years
C) 2.30 years
D) 2.53 years
E) 2.78 years
G) A) and C)
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A) If the cost of capital declines,this lowers a project's NPV.
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 cost of capital,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) 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.
G) A) and B)
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B) False
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B) False
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A) One defect of the IRR method versus the NPV is that the IRR does not take account of the time value of money.
B) One defect of the IRR method versus the NPV is that the IRR does not take account of the cost of capital.
C) One defect of the IRR method versus the NPV is that the IRR values a dollar received today the same as a dollar that will not be received until sometime in the future.
D) One defect of the IRR method versus the NPV is that the IRR does not take proper account of differences in the sizes of projects.
E) One defect of the IRR method versus the NPV is that the IRR does not take account of cash flows over a project's full life.
G) B) and C)
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A) Since the projects are mutually exclusive,the firm should always select Project B.
B) If the crossover rate is 8%,Project B will have the higher NPV.
C) Only one project has a positive NPV.
D) If the crossover rate is 8%,Project A will have the higher NPV.
E) Each project must have a negative NPV.
G) A) and B)
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A) The IRR method can never be subject to the multiple IRR problem,while the MIRR method can be.
B) One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.
C) The higher the cost of capital,the shorter the discounted payback period.
D) The MIRR method assumes that cash flows are reinvested at the crossover rate.
E) The MIRR and NPV decision criteria can never conflict.
G) B) and E)
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A) Ignores cash flows beyond the payback period.
B) Does not directly account for the time value of money.
C) Does not provide any indication regarding a project's liquidity or risk.
D) Does not take account of differences in size among projects.
E) Lacks an objective,market-determined benchmark for making decisions.
G) C) and D)
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B) False
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