Which of the following statements is CORRECT? If the cost of capital declines, this increases a project's NPV. The NPV method is regarded by most academics as being the best indicator of a project's profitability; hence, most academics recommend that firms use only this one method A project's NPV depends on the total amount of cash flows the project produces, but because the cash flows are discounted at the cost of capital, it does not matter if the cash flows occur early or late in the project's life. The NPV and IRR methods give different recommendations regarding which of two mutually exclusive projects should be accepted, and they always give the different recommendation regarding the acceptability of a normal, independent project. The NPV method was once the favorite of academics and business executives, but today most authorities regard the MIRR as being the best indicator of a project's profitability QUESTION 40 Which of the following statements is CORRECT? The faster an asset is depreciated, the lower the projected NPV from investing in the asset. Using accelerated depreciation rather than straight-line normally has no effect on a project's total projected cash flows nor would it affect the timing of those cash flows or the resulting NPV of the project Corporations must use the same depreciation method for both stockholder reporting and tax purposes. Using accelerated depreciation rather than straight line normally has the effect of speeding up cash flows and thus increasing a project's forecasted NPV. Depreciation is a non-cash item so completely irrelevant for capital budgeting QUESTION 41 Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. A project's regular IRR is found by discounting the cash inflows at the cost of capital to find the present value (PV), then compounding this PV to find the IRR. If a project's IRR is greater than the WACC, then its NPV must be positive. To find a project's IRR, we must solve for the discount rate that causes the FV of the inflows to equal the PV of the project's costs. To find a project's IRR, we must find a discount rate that is equal to the cost of capital, A project's regular IRR is found by compounding the cash inflows at the cost of capital to find the terminal value (TV), then discounting this TV at the cost of capital