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1. Which one of the following methods of analysis is most appropriate to use when the...

1. Which one of the following methods of analysis is most appropriate to use when the project has unconventional cash flows? a. Internal rate of return b. Profitability index c. Net present value d. Average accounting return

2. A debt-free firm has net income of $107,800, zero interest expense, taxes of $38,700, and depreciation of $19,300. What is the operating cash flow? a. $88,000 b. $123,500 c. $127,100 d. $126,700

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Answer #1

1. Most popular and appripriate methods to use among the 4 categories are Net Present value and Internal rate of return. But in case of unconventional cash flows , there may be problem of multiple IRRs , which makes it difficult to analyse and land on a judgement with the help of IRR calculation. So most appropriate method of analysis for non conventional cash flows is NPV.

2. The answer is (c) 127100

operating cash flow = Net Income + depreciation = 107800 + 19300= 127100

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