Question

We can use the IRR method to evaluate this project because there is only one sign...

We can use the IRR method to evaluate this project because there is only one sign change.

True

False

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

True. IRR is a capital budegting tool used to assess a project and it refers to the rate of return at which the present value of cash inflows is equal to the present value of cash outflows. Hence at IRR, the NPV of a project is zero.

One disadvantage of IRR as a decision making tool is that there is less possibility to obtain multiple rates of return when solving IRR due to cash flows changing erratically (from positive to negative and vice versa is large quantities or over large periods of time) more than once during the lifetime of the project.

Hence, it is better to use IRR for projects which have only one sign change in its cash flows over the project life.

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
What is IRR and why it may not be the best method to evaluate a project?
What is IRR and why it may not be the best method to evaluate a project?
1) If the NPV of a project with one sign reversal is positive, then its IRR:...
1) If the NPV of a project with one sign reversal is positive, then its IRR: Select one: a. must be greater than the required rate of return b. must be less than the required rate of return c. could be greater or less than the required rate of return d. cannot be determined without actual cash flows 2) Which of the following statements is INCORRECT? Select one: a. An acceptable project should have an NPV greater than or equal...
Is it true that we can only use the IRR to compare 2 projects, if both...
Is it true that we can only use the IRR to compare 2 projects, if both projects have: 1)the same initial Investment amount and 2) the same life time? If so, how do we compare two projects that do not fulfil both of the aforementioned criteria by means of IRR? Could you Maybe come up with a numerical example? Thanks a lot
Only pure risk is insurable. True False The internal rate of return (IRR) method estimates the...
Only pure risk is insurable. True False The internal rate of return (IRR) method estimates the rate of return that can be expected from a contemplated investment. True False The percentage annual interest rate is the rate a business will pay by not taking a discount. True False
If the NPV of a project with one sign reversal in negative, then the project's IRR...
If the NPV of a project with one sign reversal in negative, then the project's IRR ____________ the firm's required rate of return could be greater or less than is exactly equal to must be greater than must be less than
1. Which of the following statements is CORRECT? A. One problem of the IRR method is...
1. Which of the following statements is CORRECT? A. One problem of the IRR method is that it does not consider all cash flows of a project. B. One problem of the IRR method is that it does not take into account the time value of money. C. One problem of the IRR method is that it does not consider the reinvestment of cash inflows. D. One problem of the IRR method is that a dollar received today is valued...
1(a). (TRUE or FALSE?) We calculate the payback period for a proposed project by adding a...
1(a). (TRUE or FALSE?) We calculate the payback period for a proposed project by adding a project’s positive cash flows, one period at a time, until the sum equals the initial investment. 1(b). (TRUE or FALSE?) When evaluating proposed projects with the IRR method, those projects with IRRs that are greater than the required rate of return are rejected. 1(c). (TRUE or FALSE?) If the project’s IRR is greater than or equal to the hurdle rate (discount rate), the project...
Which of the following statements is CORRECT? A) One defect of the IRR method is that...
Which of the following statements is CORRECT? A) One defect of the IRR method is that it does not take account of cash flows over a project’s full life. B) One defect of the IRR method is that it does not take account of the time value of money. C) One defect of the IRR method is that it does not take account of the cost of capital. D) One defect of the IRR method is that it values a...
The IRR evaluation method assumes that cash flows from the project are reinvested at a rate...
The IRR evaluation method assumes that cash flows from the project are reinvested at a rate equal to the project’s IRR. However, in reality, the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, using the modified IRR approach, you can make a more reasonable estimate of a project’s rate of return than the project’s IRR can. Consider the following situation: Cold Goose Metal Works Inc. is analyzing a project that requires an initial investment...
The IRR evaluation method assumes that cash flows from the project are reinvested at the same...
The IRR evaluation method assumes that cash flows from the project are reinvested at the same rate equal to the IRR. However, in reality the reinvested cash flows may not necessarily generate a return equal to the IRR. Thus, the modified IRR approach makes a more reasonable assumption other than the project’s IRR. Consider the following situation: Blue Llama Mining Company is analyzing a project that requires an initial investment of $450,000. The project’s expected cash flows are: Year Cash...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT