Question
Q2 a) Which of the following can cause a project to have multiple IRRs? a. With mutually exclusive investments. b. A project has negative cash
Q2
a)
Which of the following can cause a project to have multiple IRRs?
| a. | With mutually exclusive investments. | |
| b. | A project has negative cash flows in the first three years, but positive cash flows thereafter. | |
| c. | The project has a large initial outlay. | |
| d. | A ten-year project has a negative cash flow in the last year of the project's life. | |
| e. | Whenever project cash flows are conventional. |
b)
When the present value of the cash inflows exceeds the initial cost of a project, then the project should be:
| a. | Rejected because the net present value is negative. | |
| b. | Accepted because the internal rate of return is positive. | |
| c. | Accepted because the profitability index is greater than 1. | |
| d. | Accepted because the profitability index is negative. | |
| e. | Rejected because the internal rate of return is negative. |
c)
An investment is acceptable if it's IRR:
| a. | Is less than the required return. | |
| b. | Exceeds the required return. | |
| c. | Is exactly equal to zero. | |
| d. | Is exactly equal to its net present value (NPV). | |
| e. | Is exactly equal to 100 %. |
d)
Which capital investment evaluation technique offers the following advantages? (1) Easy to calculate; (2) Needed information will usually be available.
| a. | Discounted payback | |
| b. | Payback period | |
| c. | NPV | |
| d. | AAR | |
| e. | IRR |
e)
Without using formulas, provide a definition of average accounting return (AAR).
| a. | A project analysis tool that measures the acceptability of a project by determining the amount of profit that can be expected based on an investment made. | |
| b. | A ranking method used to assess projects. PI greater than 1 signify positive NPV projects, while PI less than 1 signify negative NPV projects. | |
| c. | A project analysis tool that measures the acceptability of a project through the difference between a project's initial investment and whether the present value of its cash flow will repay the investment. | |
| d. | A project analysis tool that determines the amount of time required for an investment to generate cash flows to recover its initial cost. | |
| e. | A project analysis tool that measures the acceptability of a project by determining the length of time required for an investment's discounted cash flows to equal its initial cost. |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started