1-) On a purely theoretical basis, IRR is a better approach when selecting among two mutually exclusive projects.

True/False?Rationale?

2-) Net present value (NPV) assumes that intermediate cash inflows are reinvested at the cost of capital, whereas internal rate of return (IRR) assumes that intermediate cash inflows can be reinvested at a rate equal to the project's IRR.

True/False?Rationale?

3-)Conflicting rankings in the case of mutually exclusive projects using NPV and IRR often result from differences in the magnitude and/or timing of cash flows.

True/False?Rationale

4-) While vacationing in Florida, John Kelley saw the vacation home of his dreams. It was listed with a sale price of $171,000. The only catch is that John is 39 years old and plans to continue working until he is 65. Still, he believes that prices generally increase at the overall rate of inflation. John believes that he can earn 11% annually after taxes on his investments. He is willing to invest a fixed amount at the end of each of the next 26 years to fund the cash purchase of such a house (one that can be purchased today for $171,000) when he retires.

a-) Inflation is expected to average 3% a year for the next 26 years. What will John's dream house cost when he retires?

b-) How much must John invest at the end of each of the next 26 years to have the cash purchase price of the house when he retires?

c-) If John invests at the beginning instead of at the end of each of the next 26 years, how much must he invest each year?