Question

When evaluating capital projects, the decisions using the NPV method and the IRR method will agree...

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.

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

Option "D" is correct.

A conventional project cash flow in capital budgeting is one in which an initial cash outflow is followed by one or more future cash inflows.

NPV method is the preferred valuation tool as it accounts for both time value of money and the project’s risk. Furthermore, NPV is not sensitive to nonconventional projects, and therefore it is superior to the IRR technique and it gives a measure of the value increase/decrease to the firm by taking the project.

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
When evaluating mutually exclusive capital budgeting projects, the NPV and IRR could conflict with each other...
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.
"If a firm has no mutually exclusive projects but has only independent ones, and it also...
"If a firm has no mutually exclusive projects but has only independent ones, and it also has both a constant required rate of return and projects with conventional cash flow patterns, then the NPV and IRR methods will always lead to identical capital budgeting decisions." Please state agree, disagree, or uncertain, and discuss your answer briefly.
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Criteria:                Project_A         Project_B             Project_C         Project_D          Project_E               Project_F             Project_G NPV= $137,083 $31,290 $6,016 $7,647 ($584) $12,521 $9,214 IRR= 31.80% 48.34% 12.03% 11.30% 9.94% 26.79% 37.87% MIRR= 18.52% 23.52% 10.62% 10.59% 9.97% 23.53% 20.76% PI= 1.69 2.25 1.040 1.038 1.00 2.25 1.92 The discounting rate...
If mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV)...
If mutually exclusive projects with normal cash flows are being analyzed, the net present value (NPV) and internal rate of return (IRR) methods   agree. Projects Y and Z are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. Year Project Y Project Z 0 –$1,500 –$1,500 1 $200 $900 2 $400 $600 3 $600 $300 4 $1,000 $200    If the weighted average cost of capital (WACC) for each project is 14%, do the NPV and...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Project A Project B Project C Project D Project E Project F Project G NPV= $4,711 ($711) ($657) $334 $9,842 $7,360 ($3,224) IRR= 44.51% 5.47% 8.06% 12.98% 22.56% 17.19% 5.47% MIRR= 25.23% 7.50% 8.97% 11.57% 16.26% 13.70% 7.50% PI= 2.178 0.822 0.945 1.028 1.394 1.294 0.871 The discounting rate (r)...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Criteria:                Project_A         Project_B             Project_C         Project_D          Project_E               Project_F             Project_G NPV= $137,083 $31,290 $6,016 $7,647 ($584) $12,521 $9,214 IRR= 31.80% 48.34% 12.03% 11.30% 9.94% 26.79% 37.87% MIRR= 18.52% 23.52% 10.62% 10.59% 9.97% 23.53% 20.76% PI= 1.69 2.25 1.040 1.038 0.999 2.25 1.92 The discounting rate...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal rate of return. MIRR = modified internal rate of return. PI = profitability index. Criteria:                Project_A         Project_B             Project_C         Project_D          Project_E               Project_F             Project_G NPV= $137,083 $31,290 $6,016 $7,647 ($584) $12,521 $9,214 IRR= 31.80% 48.34% 12.03% 11.30% 9.94% 26.79% 37.87% MIRR= 18.52% 23.52% 10.62% 10.59% 9.97% 23.53% 20.76% PI= 1.69 2.25 1.040 1.038 0.999 2.25 1.92 The discounting rate...
The large furniture retailer "Sofa So Good" is evaluating two mutually exclusive projects: NPV versus IRR....
The large furniture retailer "Sofa So Good" is evaluating two mutually exclusive projects: NPV versus IRR. Consider the following projects where the firms may only choose one not both: The firm's cost of capital/required return equals 9%. NOTE: The firm's cost of capital K, acts as a hurdle rate, and is based on the costs involved in financing other firm projects. The Cost of capital allows us to decide to accept or reject an investment, using IRR, which additionally allows...
Two projects are being considered. An office building has an IRR of 20%; NPV of $100,000...
Two projects are being considered. An office building has an IRR of 20%; NPV of $100,000 and a payback of 3 years. Alternatively a small sandwich shop has an IRR of 40%; NPV of $25,000 and a payback of 1 year. Which of the two projects should be chosen? If projects are mutually exclusive, choose both; if projects are independent, choose Sandwich shop. If projects are mutually exclusive, choose Sandwich Shop; if projects are independent, choose both. Do not choose...
A firm with a 14% WACC is evaluating two projects for this year's capital budget. After-tax...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT