NPV versus IRR: which of the following statements is TRUE?

NPV method assumes cash flows are reinvested at the YTM

IRR method assumes cash flows are reinvested at the NPV

IRR method is preferred over the NPV method because Payback can be calculated

NPV method is preferred over IRR because cash flows are reinvested at the opportunity cost of capital (WACC). NPV should be used to choose between mutually exclusive projects

What is the Expected Net Present Value of a project (WACC = 10%) with the following data: Initial upfront cost of $200,000; 60% probability that customer accepts and cash flows will be $150,000 for 3 years and a 40% probability that customer rejects and annual cash flows are -$25,000.

$173,027

-$262,171

-$1,052

-$222,727

$14,725

Which one of the following is NOT a step in the Capital Budgeting process:?

Estimate Revenues but ignore cash flows

Determine appropriate cost of capital

Find NPV and / or IRR

Assess riskiness of cash flows

Accept if NPV > 0 and / or IRR > WACC