Question
1) NPV assumes that the reinvestment rate on cash flows is equal to the cost of capital (WACC), but MIRR assumes that the reinvestment rate
1) NPV assumes that the reinvestment rate on cash flows is equal to the cost of capital (WACC), but MIRR assumes that the reinvestment rate on cash flows is equal to MIRR.
True
False
2) For two mutually projects, we assume their NPV profiles cross and the crossover rate is 9.3%. We assume the require rate of return is r. We use both NPV and IRR methods to analyze the two projects. Which of the following statements is most correct?
If r > 8.3%, NPV and IRR methods always obtain similar decisions.
If r > 9.3%, NPV and IRR methods obtain conflicting decisions.
If r < 8.3%, NPV and IRR methods might obtain conflicting decisions.
None of the above statement is correct.
3)
A firm is considering an investment project with the following cash flows: Year 0 = -$125,000 (initial costs); Year 1= $35,000; Year 2 =$85,000; and Year 3 = $25,000; and Year 4 = $55,000. The company has an 8.8% cost of capital. Calculate the IRR for the project.
18.9%
21.7%
34.6%
26.3%
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