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Assume a project has normal cash flows. All else equal, which of the following statements

Assume a project has normal cash flows. All else equal, which of the following statements

Assume a project has normal cash flows. All else equal, which of the following statements is CORRECT?

Question 31 options:

 

A)

A project's NPV increases as the WACC declines.

 

B)

A project's MIRR is unaffected by changes in the WACC.

 

C)

A project's regular payback increases as the WACC declines.

 

D)

A project's discounted payback increases as the WACC declines.

 

E)

A project's IRR increases as the WACC declines.

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Question 32 (2.5 points)

Which of the following statements is CORRECT?

Question 32 options:

 

A)

The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

 

B)

The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

 

C)

The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

 

D)

The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

 

E)

The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.

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Question 33 (2.5 points)

Which of the following statements is CORRECT?

Question 33 options:

 

A)

The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.

 

B)

The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the risk-free rate.

 

C)

The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period.

 

D)

The IRR method does not consider all relevant cash flows, particularly cash flows beyond the payback period.

 

E)

The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR.

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Question 34 (2.5 points)

Projects S and L are equally risky, mutually exclusive, and have normal cash flows. Project S has an IRR of 15%, while Project L's IRR is 12%. The two projects have the same NPV when the WACC is 7%. Which of the following statements is CORRECT?

Question 34 options:

 

A)

If the WACC is 6%, Project S will have the higher NPV.

 

B)

If the WACC is 13%, Project S will have the lower NPV.

 

C)

If the WACC is 10%, both projects will have a negative NPV.

 

D)

Project S's NPV is more sensitive to changes in WACC than Project L's.

 

E)

If the WACC is 10%, both projects will have positive NPVs.

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Question 35 (2.5 points)

Ellmann Systems is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that if a project's expected NPV is negative, it should be rejected.

WACC:

9.00%

     

Year

0

1

2

3

Cash flows

Acˆ’$1,000

$500

$500

$500

Question 35 options:

 

$265.65

 

$278.93

 

$292.88

 

$307.52

 

$322.90

Question 36 (2.5 points)

Spence Company is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC or negative, in both cases it will be rejected.

Question 36 options:

 

A)

14.05%

 

B)

15.61%

 

C)

17.34%

 

D)

19.27%

 

E)

21.20%

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Question 37 (2.5 points)

McGlothin Inc. is considering a project that has the following cash flow data. What is the project's payback?

Year

0

1

2

3

Cash flows

Acˆ’$1,150

$500

$500

$500

Question 37 options:

 

A)

1.86 years

 

B)

2.07 years

 

C)

2.30 years

 

D)

2.53 years

 

E)

2.78 years

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Question 38 (2.5 points)

Reed Enterprises is considering a project that has the following cash flow and WACC data. What is the project's NPV? Note that a project's expected NPV can be negative, in which case it will be rejected.

WACC:

10.00%

     

Year

0

1

2

3

Cash flows

Acˆ’$1,050

$450

$460

$470

Question 38 options:

 

A)

$92.37

 

B)

$96.99

 

C)

$101.84

 

D)

$106.93

 

E)

$112.28

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Question 39 (2.5 points)

Computer Consultants Inc. is considering a project that has the following cash flow and WACC data. What is the project's MIRR? Note that a project's MIRR can be less than the WACC (and even negative), in which case it will be rejected.

WACC:

10.00%

     

Year

0

1

2

3

Cash flows

Acˆ’$1,000

$450

$450

$450

Question 39 options:

 

A)

9.32%

 

B)

10.35%

 

C)

11.50%

 

D)

12.78%

 

E)

14.20%

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Question 40 (2.5 points)

Craig's Car Wash Inc. is considering a project that has the following cash flow and WACC data. What is the project'sdiscounted payback?

Question 40 options:

 

A)

1.88 years

 

B)

2.09 years

 

C)

2.29 years

 

D)

2.52 years

 

E)

2.78 years

Abhinav 03-Dec-2019

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