(a) Indicate whether the following statements are true or false.

(i) Two mutually exclusive projects (A and B) have been evaluated. Project A has an NPV of ₹8 lakh and an IRR of 16 per cent; Project B has NPV of ₹7 lakh but has IRR or 18 per cent. Since Project B has higher IRR, it should be selected.

(ii) The cost of capital for new projects is 15 per cent. Two competing projects (X and Y) respectively have IRRs of 14 per cent and 12 per cent respectively; since IRR of project X is higher, it should be selected.

(iii) Two competing projects have the following NPVs: Project X, + ₹5 lakh (with initial outlay of ₹25 lakh) and Project Y, + ₹4,20,000 (with initial outlay of ₹20,00,000). The company should opt for project X as it has higher NPV.

(iv) A project requires an initial investment of ₹10,00,000. The estimated cash inflows from the project are as follows: ₹3 lakh (year 1), ₹1 lakh (year 2), ₹3 lakh (year 3), ₹6 lakh (Year 4) and ₹4 lakh

(year 5). The pay back of the project is 4 years.

(v) A project requires an investment of ₹20 lakh. The estimated profit after tax for years 1–5 are: ₹3 lakh, ₹3 lakh, ₹3 lakh, ₹6 lakh and ₹8 lakh. The accounting rate of return is 21 per cent

(vi) In the case of independent investment projects, if the NPV of the project is zero, IRR is equal to cost of capital.

(vii) A company has evaluated 3 investment proposals under IRR method, yielding different rates of return. Though the IRR values are varying, reinvestment rate of intermediate cash inflows is assumed to be the same for all these 3 proposals.

(viii) Since IRR is expressed in percentage figure, it is the best method for evaluating capital budgeting projects.

(ix) The more distant the CFAT, the higher is the present value of such cash flows.

(x) NPV is the best method of evaluating long-term investment proposals.

(b) Fill in the following blanks:

(xi) ______________ present value tables can be used only when cashflows are uniform to determine NPV.

(xii) In the case of mixed stream of cash flows, ___________ present value tables are used to determine NPV.

(xiii) _____________ determines the number of years required to recover initial investment outlay.

(xiv) In the case of ___________ investment proposals, IRR and NPV method provides the same result.

(xv) In the case of conflict in ranking. _______________ method provides better result than ____________ method.