1. Which of the following statements is CORRECT? Assume that all projects being considered have normal cash flows and are equally risky.

A. If a projects IRR is equal to its WACC, then under all reasonable conditions, the projects IRR must be negative.

B. If a projects IRR is equal to its WACC, then, under all reasonable conditions, the projects NPV must be negative.

C. There is no necessary relationship between a projects IRR, its WACC, and its NPV.

D. When evaluating mutually exclusive projects, those projects with relatively long lives will tend to have relatively high NPVs when the cost of capital is relatively high.

E. If a projects IRR is equal to its WACC, then under all reasonable conditions the projects NPV must be zero.

2. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

A. If a projects IRR is positive, then its NPV must also be positive.

B. A projects IRR is the discount rate that causes the PV of the inflows to equal the projects cost.

C. If a projects IRR is smaller than the WACC, then its NPV will be positive.

D. A projects regular IRR is found by compounding the initial cost at the WACC to find the terminal value (TV), then discounting the TV at the WACC.

E. A projects regular IRR is found by compounding the cash inflows at the WACC to find the present value (PV), then discounting the TV to find the IRR.

3. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

A. One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money.

B. If a company uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the company will tend to reject projects with relatively short lives and accept long-lived projects, and this will cause its risk to increase over time.

C. The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem.

D. The longer a projects payback period, the more desirable the project is normally considered to be by this criterion.

E. If a projects payback is positive, then the project should be rejected because it must have a negative NPV.

4. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

A. If a projects NPV is greater than zero, then its IRR must be less than zero.

B. A projects NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting the TV at the IRR to find its PV.

C. If a projects NPV is greater than zero, then its IRR must be less than the WACC.

D. The higher the WACC used to calculate the NPV, the lower the calculated NPV will be.

E. The NPVs of relatively risky projects should be found using relatively low WACCs.

5. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

A. If Project A has a higher IRR than Project B, then Project A must have the lower NPV.

B. If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.

C. The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.

D. If a project has normal cash flows and its IRR exceeds its WACC, then the projects NPV must be positive.

E. The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC.

6. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

A. To find a projects MIRR, we compound cash inflows at the IRR and then discount the terminal value back to t = 0 at the WACC.

B. A projects MIRR is always less than its regular IRR.

C. A projects MIRR is always greater than its regular IRR.

D. If a projects IRR is greater than its WACC, then the MIRR will be less than the IRR.

E. If a projects IRR is greater than its WACC, then the MIRR will be greater than the IRR.