Question

A graph of the firm’s investment opportunities ranked in order of the projects’: a. discounted payback b. internal rate of return c. net present value d. payback Answer?

Answer #1

**A graph of the firm’s investment opportunities ranked in
order of the projects internal rate of return.**

**Answer: Internal Rate of Return**

**Internal Rate of Return (IRR) is the rate of interest
that makes the sum of all cash flows zero and is useful to compare
one investment to another. The internal rate of return on an
investment or project is the "annualized effective compounded
return rate. It is used in capital budgeting to estimate the
profitability of potential investments.**

The management of Revco Products is exploring four different
investment opportunities. Information on the four projects under
study follows:
Project Number
1
2
3
4
Investment required
$
(570,000
)
$
(500,000
)
$
(370,000
)
$
(340,000
)
Present value of cash inflows at a 11% discount rate
603,219
584,233
385,015
366,546
Net present value
$
33,219
$
84,233
$
15,015
$
26,546
Life of the project
6 years
12 years
6 years
3 years
Internal rate of return...

Rossiter Restaurants is evaluating several new projects. Applying
the discounted payback decision rule to all projects may cause:
A) some positive net present value projects to be
rejected
B) some projects to be accepted which would otherwise be
rejected under the payback rule
C) Projects to be incorrectly accepted due to ignoring the
time value of money
D) The most liquid projects to be rejected in favor of less
liquid projects.
E) a firm to become more long-term focused.

Which is the best technique for decision?
1. payback period
2. Discounted payback period
3. Net present value
4. profitability index
5. Internal rate of return

Calculate the discounted payback, net present value, and
internal rate of return for the following cash flows. -60, -50, 6,
45, 60, 70, 60, 45, 20. Discount rate at 10%. Please show work for
the internal rate of return calculation.

11.
The discount rate that makes the net present value of an
investment exactly equal to zero is the:
A)
Payback period.
B)
Internal rate of return.
C)
Average accounting return.
D)
Profitability index.
E)
Discounted payback period.
12.
The internal rate of return (IRR) rule can be best stated
as:
A)
An investment is acceptable if its IRR is exactly equal to its
net present value (NPV).
B)
An investment is acceptable if its IRR is exactly equal to...

art Three
Present Value Index
When funds for capital investments are limited, projects can be
ranked using a present value index. A project with a negative net
present value will have a present value index below 1.0. Also, it
is important to note that a project with the largest net present
value may, in fact, return a lower present value per dollar
invested.
Let's look at an example of how to determine the present value
index.
The company has a...

Project A has a net present value of $1,500, a payback period of
2 years, and an internal rate of return of 12%. Project
B has a net present value of $1,800, a payback period of 4 years,
and an internal rate of return of 10%. Project C has a
netpresent value of $1,750, a payback period of 3 years, and an
internal rate of return of 11%. If the projects are
mutually exclusive, which project should be undertaken?
A.
Project A because...

In some cases, the payback
reciprocal can be used to estimate the:
a.
internal rate of return
b.
accounting rate of return
c.
profitability index
d.
net present value
e.
net initial investment

1. Under conditions of capital rationing (i.e., limited capital
funds are available), the optimal allocation of funds to capital
investment projects occurs when management uses which one of the
following decision models?
a. Internal Rate of Return (IRR)
b. Discounted accounting rate of return
c. Profitability Index (PI)
d. Discounted Payback (WRONG ANSWER)
e. Modified Internal Rate of Return (MIRR).
2. The payback period for evaluating capital investment projects
emphasizes:
a. Average net income divided by average investment
b. Average...

(a) Explain why investment appraisal methods based on project
cash flows are regarded as superior to earnings-based measures such
as forecasted return on assets. (120 words) (b) Compare
the merits of the net present value (NPV), internal rate of return
(IRR) and discounted payback period methods of capital investment
project appraisal, assuming the firm’s objective is to maximise the
wealth of its equityholders. What conditions must apply for the net
present value (NPV) and internal rate of return (IRR) methods...

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 1 minute ago

asked 1 minute ago

asked 1 minute ago

asked 1 minute ago

asked 3 minutes ago

asked 3 minutes ago

asked 3 minutes ago

asked 5 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 12 minutes ago

asked 14 minutes ago