1) Which of the following statements is CORRECT?

a. The NPV and IRR methods may give different recommendations regarding which of two mutually exclusive projects should be accepted, but they always give the same recommendation regarding the acceptability of a normal, independent project.

b. The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability.

c. The NPV method is regarded by most academics as being the best indicator of a project's profitability; hence, most academics recommend that firms use only this one method.

d. If the cost of capital declines, this lowers a project's NPV.

e. A project's NPV depends on the total amount of cash flows the project produces, but because the cash flows are discounted at the cost of capital, it does not matter if the cash flows occur early or late in the project's life.

2) Which of the following statements is CORRECT?

a. One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the cost of capital, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate.

b. Since cash flows under the IRR and MIRR are both discounted at the same rate (the cost of capital), these two methods always rank mutually exclusive projects in the same order.

c. One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does not.

d. One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project's full life whereas IRR does not.

e. One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.

3)

Lancaster Corp. is considering two equally risky, mutually exclusive projects, both of which have normal cash flows. Project A has an IRR of 11%, while Project B's IRR is 14%. When the cost of capital is 8%, the projects have the same NPV. Given this information, which of the following statements is CORRECT?

a. If the cost of capital is 6%, Project B's NPV will be higher than Project A's.

b. If the cost of capital is greater than 14%, Project A's IRR will exceed Project B's.

c. If the cost of capital is 9%, Project B's NPV will be higher than Project A's.

d. If the cost of capital is 13%, Project A's NPV will be higher than Project B's.

e. If the cost of capital is 9%, Project A's NPV will be higher than Project B's.