Question
Suppose a capital budgeting project generates its largest cash flows in the early years of its life (i.e., up front) rather than near the end
Suppose a capital budgeting project generates its largest cash flows in the early years of its life (i.e., up front) rather than near the end of its life. In this situation, which of the following statements about the project must be correct?
a. The project will have multiple internal rates of return.
b. The required rate of return of the project must be revised throughout its life.
c. The net present value of the project must be negative.
d. The project's traditional payback period will be greater than the years expected to recover the original investment.
e. The net present value of the project is not as sensitive to changes in the firm's required rate of return as the net present value of a project that generates large cash flows later in its life.
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