Question

) Which if the statements below describes the correct capital budgeting decision rule? a) Reject a project if the cost of capital exceeds the IRR. B) Reject a project if the cost of capital is less that the NPV. C) Accept a project if the NPV is greater than the IRR. D) Accept a project if the cost of capital is greater that the NPV.

Answer #1

a) When the cost of capital exceeds the IRR, then the project should be rejected. The project should be accepted and pursued only when the IRR is greater than cost of capital.

b) When the cost of capital is less than the NPV, then the project should be accepted. NPV is calculated using the firm's cost of capital.

c) NPV is the preferred method in case of inconsistencies arise. It better reflects the primary goal of the company i.e. growth of financial wealth of company. Hence, the project with high NPV and less IRR will be selected.

d) If the cost of capital is greater than the NPV, then the project should be rejected.

The statements a and c are correct and support the correct capital budgeting decision rule.

Which of the following statements is INCORRECT regarding
capital budgeting tools?
If the NPV is positive, the Profitability Index must be greater
than 1.
If the IRR is greater than the required return, then the NPV
will be positive.
The discounted payback period will always be smaller than the
payback period.
The NPV is the best capital budgeting tool, as a general
rule.

Which of the following is statements related to capital
budgeting is not true? A project is considered acceptable if its
NPV is greater zero. A project whose NPV is greater than its IRR is
should be accepted. Both the NPV method and the IRR method of
evaluating capital investment projects are widely considered to be
superior to the payback method. An NPV of zero signifies that the
project's cash flows are just sufficient to repay the invested
capital and to...

Which of the following statements about capital budgeting
decision methods is most correct?
NPV is superior since it is the most conceptually correct
method.
IRR is superior since it measures the rate of return on a
capital investment.
PI is superior since it measures the present value benefit per
dollar of capital invested.
PB is superior since it is quick and easy to use and
understand.
None of the three methods is considered superior to the
others.

Which one of the following is TRUE?
The NPV decision rule says to accept an investment if the NPV is
negative.
The IRR decision rule states that a project should be accepted
if its IRR exceeds the required return.
The discount rate that causes the net present value of a project
to equal zero is called the market rate.
IRR is superior to NPV for choosing between different
projects.
Payback ignores the project's cost.

Which of the following statements is CORRECT? Assume that the
project being considered has normal cash flows, with one outflow
followed by a series of inflows.
a.
The NPVs of relatively risky projects should be found using
relatively low costs of capital.
b.
If a project's NPV is greater than zero, then its IRR must be
less than the cost of capital.
c.
The higher the cost of capital used to calculate the NPV, the
lower the calculated NPV will...

Tom just got out of a meeting with felicity in which they
discussed a capital budgeting project they are evaluating for the
company. Tom's mind was not focused on the meeting, so all he can
remember is that Felicity used one of the time value of money
techniques mentioned in the book to evaluate the project and that
she concluded the project should be purchase. based on this
information, which of the following statements must be correct?
A. The projected...

When applying the concept of present value to capital budgeting
decisions, which of the following statements is TRUE?
Question 28 options:
Internal rate of return cannot be computed when cash flows are
unequal year to year
A project with a higher IRR will be preferable over one with a
lower IRR.
A positive NPV means that a project earns less than the cost of
capital on a project.
Residual value is not included in the calculation of Net Present
Value.

Which of the following statements is CORRECT? Assume that the
project being considered has normal cash flows, with one outflow
followed by a series of inflows.
Group of answer choices
The lower the cost of capital used to calculate a project's NPV,
the lower the calculated NPV will be.
If a project's NPV is less than zero, then its IRR must be less
than the cost of capital.
If a project's NPV is greater than zero, then its IRR must...

12. Conclusions about capital budgeting
The decision process
Before making capital budgeting decisions, finance professionals
often generate, review, analyze, select, and implement long-term
investment proposals that meet firm-specific criteria and are
consistent with the firm 's strategic goals.
Companies often use several methods to evaluate the project's
cash flows and each of them has its benefits and disadvantages.
Based on your understanding of the capital budgeting evaluation
methods, which of the following conclusions about capital budgeting
are valid? Check all...

Homework - Capital Budgeting
1.The Hyatt Group Inc., has identified the following two
mutually exclusive projects:
Cash FlowsCash Flows
YearProject AProject B
0-$10,000_$10,000
1 200 5,000
2 500 6,000
3 8,200 500
4 4,800 500
a. What is the IRR of each of these projects? If you apply the
IRR decision rule, which project should the company accept? Is this
decision necessarily correct?
b. If the required rate of return is 9 percent, what is the
NPV of each of...

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