Question

You are on the staff of Camden Inc. The CFO believes project
acceptance should be based on the NPV, but Steve Camden, the
president, insists that no project should be accepted unless its
IRR exceeds the project’s risk-adjusted WACC. Now you must make a
recommendation on a project that has a cost of $15,000 and two cash
flows: $110,000 at the end of Year 1 and -$100,000 at the end of
Year 2. The president and the CFO both agree that the appropriate
WACC for this project is 10%. At 10%, the NPV is $2,355.37, but you
find two IRRs, one at 6.33% and one at 527.01%, and a MIRR of
11.32%. Which of the following statements best describes your
optimal recommendation, i.e., the analysis and recommendation that
is best for the company and least likely to get you in trouble with
either the CFO or the president?

Group of answer choices

You should recommend that the project be rejected because (1)
its NPV is positive and (2) it has two IRRs, one of which is less
than the WACC, which indicates that the firm’s value will decline
if the project is accepted.

You should recommend that the project be rejected because,
although its NPV is positive, it has an IRR that is less than the
WACC.

You should recommend that the project be rejected because its
NPV is negative and its IRR is less than the WACC.

You should recommend that the project be rejected because,
although its NPV is positive, its MIRR is less than the WACC, and
that indicates that the firm’s value will decline if it is
accepted.

You should recommend that the project be accepted because (1)
its NPV is positive and (2) although it has two IRRs, in this case
it would be better to focus on the MIRR, which exceeds the WACC.
You should explain this to the president and tell him that that the
firm’s value will increase if the project is accepted.

Answer #1

**As NPV is positive, Project should be
accepted.**

**As there are 2 outflows, it is a case of
non-conventional cash flows, so IRR may not be a reliable measure
but yes to solve that problem, we have MIRR, and it is greater than
WACC, so project should be accepted. so correct answer from given
options :**

**Answer : Last option : You should recommend that the
project be accepted because (1) its NPV is positive and (2)
although it has two IRRs, in this case it would be better to focus
on the MIRR, which exceeds the WACC. You should explain this to the
president and tell him that that the firm’s value will increase if
the project is accepted. **

You are on the staff of Camden Inc. The CFO believes project
acceptance should be based on the NPV, but Steve Camden, the
president, insists that no project should be accepted unless its
IRR exceeds the project’s risk-adjusted WACC. Now you must make a
recommendation on a project that has a cost of $15,000 and two cash
flows: $110,000 at the end of Year 1 and -$100,000 at the end of
Year 2. The president and the CFO both agree...

You are on the staff of Camden Inc. The CFO believes project
acceptance should be based on the NPV, but Steve Camden, the
president, insists that no project should be accepted unless its
IRR exceeds the project’s risk-adjusted WACC. Now you must make a
recommendation on a project that has a cost of $15,000 and two cash
flows: $110,000 at the end of Year 1 and -$100,000 at the end of
Year 2. The president and the CFO both agree...

A project should be rejected if IRR is _____ and accepted if IRR
is _____.
Greater than WACC; less than WACC
Greater than MIRR; less than MIRR
Less than WACC; greater than WACC
Less than MIRR; greater than MIRR
Less than 0; Greater than 0
Greater than 0; Less than 0

When the present value of the cash inflows exceeds the initial
cost of a project, then the project should be
Group of answer choices
accepted because the internal rate of return is positive
accepted because the profitability index is less than 1.
accepted because the profitability index is negative.
accepted because IRR is higher than the discount rate.
rejected because the net present value is negative

The CFO has calculated the AFN of a project and it is positive.
What should be his next step?
a. Use this number as the CF0 in the NPV or IRR
calculation.
b. Nothing, he is done!
c. Decide what to use the positive AFN for, for example raise
the dividends.
d. Invest in the project.
e. Use this number to calculate the WACC.

Cute Camel Woodcraft Company is analyzing a project that
requires an initial investment of $2,750,000. The project’s
expected cash flows are:
Year
Cash Flow
Year 1
$350,000
Year 2
–125,000
Year 3
400,000
Year 4
500,000
Cute Camel Woodcraft Company’s WACC is 9%, and the project has
the same risk as the firm’s average project. Calculate this
project’s modified internal rate of return (MIRR):
19.63%
-16.48%
27.71%
25.40%
If Cute Camel Woodcraft Company’s managers select projects based
on the MIRR...

You are a financial analyst
for a US based multinational company, and you are in the process of
putting together a proposal for a foreign investment in South
America. You have been tasked with estimating the cash flows from
the proposed investment, calculating its NPV, and making a
recommendation about the project. In accordance with standard
practice, you have calculated the project’s NPV from two
viewpoints: (i) from the parent company’s viewpoint and (ii) the
local viewpoint, also referred to...

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:
Green Caterpillar Garden Supplies Inc. is analyzing a project
that requires an initial investment of $2,500,000. The project’s
expected cash flows are:
Year...

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...

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...

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