5. Which of the following best describes the reinvestment assumptions implicit in the internal rate of return (IRR) method and the net present value (NPV) method?

A. Both NPV and IRR assume cash flows are reinvested at the cost of capital.

B. IRR assumes cash flows are reinvested at the cost of capital, while NPV assumes reinvestment at the IRR.

C. NPV assumes cash flows are reinvested at the cost of capital, while IRR assumes reinvestment at the IRR.

D.Both NPV and IRR assume cash flows are reinvested at the IRR.

E. None of these choices describes the reinvestment assumptions used by NPV and IRR.

6. The internal rate of return is the rate of interest that makes the present value of a project's cash inflows:

A. greater than the present value of its cash outflows.

B. equal to the present value of its cash outflows.

C. less than the present value of its cash outflows.

D. None of these choices are correct.

7. The internal rate of return (IRR) is simply the return on a project viewed as an investment. Therefore any project whose IRR exceeds the cost of capital:

A. should be undertaken if the company has the resources to do it.

B. contributes to wealth because it earns more than the cost of the money used to do it.

C. should not be undertaken because IRR isn't as good as NPV.

D. "should be undertaken if the company has the resources to do it" and "contributes to wealth because it earns more than the cost of the money used to do it".

8. Mutually exclusive projects:

A. occur where the acceptance or rejection of one alternative project has no bearing on the acceptance or rejection of other projects.

B. are best analyzed by the profitability index.

C. are usually different alternatives to meeting the same need.

D. None of these choices are correct.