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 (r) is 10%.
Which of the following 10 statements are false/incorrect (there are several, select all that apply). Consider each statement on its own separate from the others listed:
Question 8 options:
If all projects are independent, under the NPV rule, projects A, B, C, D, F, and G should be taken |
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If projects A, B and C are mutually exclusive (all others are independent), under the PI rule projects B, D, F and G should be undertaken |
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If only projects E and F are mutually exclusive, under the NPV rule only project A should be taken |
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If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the MIRR rule projects B, C, and F should be undertaken |
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If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the IRR rule projects B, C, and G should be undertaken |
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If all projects are mutually exclusive, under the IRR rule only project B should be taken |
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If all projects are mutually exclusive, under the NPV rule projects A, B, C, D, F and G should be taken |
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If all projects are mutually exclusive, under the NPV rule only project A should be taken |
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If projects A, B and C are mutually exclusive, projects C and D are also mutually exclusive and (all others are independent), under the NPV rule projects A, D, and F should be undertaken |
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If all projects are independent, under the PI rule, all projects should be taken |
Solution :- (8)
In case of mutually Exclusive Project , only the best one project is selected
In case of Independent Projects , all projects that are acceptable are accepted
As per NPV Project is accepted if the NPV is greater than or equal to Zero .
As per IRR Project is accepted if the IRR is greater than or equal to Discount rate
As per PI Project is accepted if the PI is greater than or equal to one .
(a) This statement is True
(b) This statement is True
(c) This statement is False
(d) This statement is True
(e) This statement is True
(f) This statement is True
(g) This statement is False
(h) This statement is True
(i) This statement is False
(j) This statement is False
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