Question

Which of the following statement is correct?

a. A firm should never accept the independent projects having NPVs greater than zero.

b. All the answers are incorrect.

c. Because the net present value method does not factor in the time value of money, nor the cash flows after the payback period, its usefulness is limited.

d. Mutually exclusive projects are the projects that do not have the same task and therefore they do not compete with each other.

e. The Net Present Value Method (NPV) is the contribution (positive or negative) to the dollar value of the firm made by the project.

Answer #1

A firm should always accept the independent projects having NPVs greater than zero. Net present value consider time value of money and consider whole period of cash flow which is not available with payback period and discounted payback period methods. Mutually exclusive project is type of project in which only one project at given time can be selected among more than one project.

The Net Present Value Method (NPV) is the contribution (positive or negative) to the dollar value of the firm made by the project.

Option (E) is correct answer.

Which of the following statement is correct? Select one:
a. Since the payback period method fails to look at the cash
flows beyond the payback period, it can lead to poor business
decisions.
b. A firm should never accept the independent projects having
NPVs greater than zero.
c. The capital budgeting projects may be about the purchase of
financial asset such as investing in stocks and bonds, futures, or
buying and selling T-bills.
d. The number of time periods it...

Question text
Which of the following statements is INCORRECT?
Select one:
a. When choosing between mutually exclusive projects, managers
should accept all projects with IRRs greater than the weighted
average cost of capital.
b. For independent projects, the decision to accept or reject
will always be the same using either the MIRR method or the NPV
method.
c. One of the disadvantages of choosing between mutually
exclusive projects on the basis of discounted payback method is
that you might choose...

The management of a firm wishes to accept projects with quick
recovery of investments; wishes to accept projects with a high
degree of liquidity; wishes to avoid the higher forecasting error
associated with cash flows a long way into the future; wishes to
avoid projects that require a large amount of R&D investments;
and so on. The firm would be justified in using the _____ to
evaluate its projects.
internal rate of return (IRR)
net present value (NPV)
average accounting...

If a firm considers two separate projects but is only able to
accept one of the projects due to the fact that each project would
require exclusive use of the Company’s manufacturing machinery,
these projects are considered to be:
Select one:
a. Independent
b. Interdependent
c. Mutually exclusive
d. Mutually inclusive
e. Operationally distinct
Internal rate of return (IRR) is defined as the:
Select one:
a. discount rate which causes the net present value of a project
to equal zero....

Senior management asks you to recommend a decision on which
project(s) to accept based on the cash flow forecasts provided.
Relevant information:
The firm uses a 3-year cutoff when using the payback
method.
The hurdle rate used to evaluate capital budgeting projects is
15%.
The cash flows for projects A, B and C are provided below.
Project A
Project B
Project C
Year 0
-30,000
-20,000
-50,000
Year 1
0
4,000
20,000
Year 2
7,000
5,000
20,000
Year 3
20,000...

Which of the following statement is correct? Select one:
a. All the answers are incorrect.
b. A positive NPV means that the firm’s value will decrease if
the project is adopted because the new project’s estimated return
is lesst than the firm’s required rate of return.
c. Reject the project if the IRR is greater than or equal to the
required rate of return.
d. Payback period is the discount rate that forces the NPV to
equal zero.
e. All...

A firm with a 14% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$9,000
$3,000
$3,000
$3,000
$3,000
$3,000
Project N
-$27,000
$8,400
$8,400
$8,400
$8,400
$8,400
Calculate NPV for each project. Do not round intermediate
calculations. Round your answers to the nearest cent.
Project M: $
Project N: $
Calculate IRR for each project. Do not round intermediate
calculations. Round your answers to...

Which of the following is not a net present value (NPV)
decision rule?
A When choosing among
independent projects, select the one with the highest rate of
return
B If an independent
investment’s NPV is negative, reject the project
C If an independent
investment’s NPV is positive, accept the project
D When choosing among
mutually exclusive projects, select the one with the highest
NPV

CAPITAL BUDGETING CRITERIA
A firm with a 14% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$18,000
$6,000
$6,000
$6,000
$6,000
$6,000
Project N
-$54,000
$16,800
$16,800
$16,800
$16,800
$16,800
Calculate NPV for each project. Round your answers to the
nearest cent. Do not round your intermediate calculations.
Project M $
Project N $
Calculate IRR for each project. Round your answers to two...

CAPITAL BUDGETING CRITERIA
A firm with a 13% WACC is evaluating two projects for this
year's capital budget. After-tax cash flows, including
depreciation, are as follows:
0
1
2
3
4
5
Project M
-$27,000
$9,000
$9,000
$9,000
$9,000
$9,000
Project N
-$81,000
$25,200
$25,200
$25,200
$25,200
$25,200
Calculate NPV for each project. Round your answers to the
nearest cent. Do not round your intermediate calculations.
Project M $
Project N $
Calculate IRR for each project. Round your answers to two...

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