Question

What are your thoughts on why payback and IRR are more frequently used than NPV, when evaluating projects?

Which method does your organization prefer?

Answer #1

Payback period is more frequently used as it is simple and easy to calculate. It gives an idea about the time period within which the firm will earn back the cash outflow or the investment amount.

IRR or internal rate of return is calculated as it helps to know what is the rate of return that can be expected from the inevstment.

NPV or the net present value is not used as the company may not be sure about the rate of return that can be used for calculations.

Our organization uses IRR for evaluating a project.

NPV, the IRR method, the payback rule, or the discounted payback
rule. In your answer define and describe each method, using
formulas

Please show your steps! Question 1
a) What is the NPV, IRR, and payback period of a project with
the following cash flows if WACC is 20%?
Time: 0
1
2
3
4
5
-$350,000
$100,000
$100,000
$100,000
$50,000
$50,000
NPV=
IRR=
Payback period=
b) Should you accept or reject the project according to NPV and
IRR?
*can you please include greater than an less than signs.* Thank
you.

When evaluating capital projects, the decisions using the NPV
method and the IRR method will agree if:
a) the projects are independent.
b) the cash flow pattern is conventional.
c) the projects are mutually exclusive.
d) both a and b.

When evaluating mutually exclusive capital budgeting projects,
the NPV and IRR could conflict with each other in the ranking of
projects. List and explain three reasons why a conflict could
exist. Which technique is best to use in a conflict? Explain.

Using the Payback Method, IRR, and NPV Problems
Purpose of Assignment
The purpose of this assignment is to allow the student to
calculate the project cash flow using net present value (NPV),
internal rate of return (IRR), and the payback methods.
Assignment Steps
Resources: Corporate
Finance
Calculate the following time value of money
problems in Microsoft Excel or Word document. You must show all of
your calculations.
If you want to accumulate $500,000 in 20 years, how much do you...

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...

Briefly answer the questions that follow.
You are considering two mutually exclusive projects. The NPV
for project one is positive and higher than the NPV for project
two, while the IRR for project two is higher than that for project
one. Which project should the firm accept and why?
When does a project result in only one IRR? If a project has
more than one IRR, how can we use Excel to find the multiple
IRRs?
A diversified, low-risk firm...

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...

11-1 How are project classifications used in the capital
budgeting process?
11-2 What are three potential flaws with the regular payback
method? Does the discounted payback method correct all three flaws?
Explain.
11-3 Why is the NPV of a relatively long-term project (one for
which a high percentage of its cash flows occurs in the distant
future) more sensitive to changes in the WACC than that of a
short-term project?
11-4 What is a mutually exclusive project? How should managers...

Which one of the following is False when it
comes to IRR?
Multiple Choice
It can be intuitively appealing because it presents its results
as a percentage rather than a dollar amount
It is not as reliable as NPV when looking at mutually exclusive
projects
It will always yield more than 1 result when NPV is negative
It will always agree with NPV for projects where all cash flows
beyond Year 0 are positive as long as the project is...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 5 minutes ago

asked 6 minutes ago

asked 9 minutes ago

asked 10 minutes ago

asked 13 minutes ago

asked 17 minutes ago

asked 23 minutes ago

asked 24 minutes ago

asked 25 minutes ago

asked 26 minutes ago

asked 31 minutes ago