If projects are mutually exclusive, only one project can be chosen. The internal rate of return (IRR) and the net present value (NPV) methods will not always choose the same project. If the crossover rate on the NPV profile is below the horizontal axis, the methods will Projects W and X are mutually exclusive projects. Their cash flows and NPV profiles are shown as follows. 1 agree. Please asnwer ENTIRE question NPV [Dollars Year Project W Project X 800 0-$1,000 -$1,500 $350 $500 $600 $750 ANSWER CHOICES $200 $350 400 $600 600 Project X 1. Sometimes, Always, Never 2. A, B 3. Modified Internal Rate of Return (MIRR) Internal Rate of Return (IRR), Required Rate of Return 4. Modified Internal Rate of Return (MIRR) Internal Rate of Return (IRR), Required Rate of Return 5. NPV Method, IRR Method 6. A, B, C, D 7. Accept, Reject 400 Project W 200 If the weighted average cost of capital (WACC) for each project is 14%, do the NPV and IRR methods agree or conflict? A The methods conflict. B 2 -200 The methods agree. 0 2 4 68 10 12 14 16 18 20 COST OF CAPITAL (Percent A key to resolving this conflict is the assumed reinvestment rate. The NPV calculation implicitly assumes that intermediate cash flows are reinvested at the assumes that the rate at which cash flows can be reinvested is the As a result, when evaluating mutually exclusive projects, the5 Celestial Crane Cosmetics is analyzing a project that requires an initial investment of $3,225,000. The project's expected cash flows are: Celestial Crane Cosmetics's WACC is 10%, and the project has the same risk as the firm's average project. Calculate this project's modified internal rate of return (MIRR) and the IRR calculation is usually the better decision criterion. 8. A, B, C 9. A, B, C, D 10.$881,975, $761,705, $641,436, -$201,795, Year Cash Flow 6 AO-19.84% Year $325,000 Year 2 -200,000 Year 3 425,000 Year 4 500,000 $801,795, $962,154 11.Accept, Reject 12.Not Invest, Invest 13.will, Will Not 14.Greater than $0, Less tha $0, Equal to $0 15. Greater than, Less than, Equal to B. 17.93% CO 14.67% DO 15.49% If Celestial Crane Cosmetics's managers select projects based on the MIRR criterion, they should7 independent project. Which of the following statements about the relationship between the IRR and the MIRR is correct? this AA typical firm's IRR will be greater than its MIRR. BA typical firm's IRR will be equal to its MIRR. C A typical firm's IRR will be less than its MIRR 8 Purple Whale Foodstuffs Inc. is considering investing $600,000 in a project that is expected to generate the following net cash flows Year Cash Flow Year 1 $300,000 Year 2 $450,000 Year 3 $425,000 Year 4 $500,000 Purple whaleuses a WACC of 7% when evaluating proposed capital budgeting projects. Based on these cash flows, determine this project's PI (rounded to four decimal places): 9 AO 2.5699 BO 1.8690 CO 1.9859 2.3363 Purple Whale's decision to accept or reject this project is independent of its decisions on other projects. Based on the project's PI, the firm should 10 the project. By comparison, the net present value (NPV) of this project is 11 criterion, Purple whale should 12in the project because the project 13 increase the fim's value. When a project has a PI greater than 1.00, it will exhibit an NPV14 have an NPV equal to s0. Projects with PIs 15 1.00 will exhibit negative NPVs. On the basis of this evaluation ;when it has a PI of 1.00, it wil