According to an academic survey of large and small U.S. businesses, the IRR method of capital budgeting is slightly preferred over NPV by the survey respondents. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
The discounted payback method, net present value method (NPV), internal rate of return (IRR), modified internal rate of return (MIRR), and profitability index (PI) are all consistent with the time value of money. Indicate whether the statement is true or false. ANSWER Answer: TRUE Explanation: The IRR method is used by 75.61% of […]
Date: September 19th, 2020
Calculating IRR, NPV, or MIRR is easy and efficient using a spreadsheet once you know the relevant cash flow, the timing of the cash flow, the cost of capital, and the reinvestment rate. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
________ is a modification of NPV to produce the ratio of the present value of the benefits (future cash inflow) to the present value of the costs (initial investment). A) Modified Internal Rate of Return Method B) Profitability Index (PI) C) Payback Period Method D) Discounted Cash Flow Method ANSWER Answer: B
Date: September 19th, 2020
Birdman, Inc. is currently considering an eight-year project that has an initial outlay or cost of $80,000. The future cash inflows from its project for years 1 through 8 are the same at $30,000. Birdman has a discount rate of 13%. Because of concerns about funds being short to finance all good projects, Birdman wants […]
Date: September 19th, 2020
The expected returns on the debt and equity of a levered firm are rE=15% and rD=7%, and the current market value of the debt and equity are E=66 and D=44, respectively. What is the firm’s weighted average cost of capital (WACC)? a. 7.8% b. 9.8% c. 11.8% d. 13.8% FORMULA: WACC=rD(D/V)+rLE(E/V) ANSWER C
Date: September 19th, 2020
When the Profitability Index (PI) is greater than 1, the benefits exceed the costs. Indicate whether the statement is true or false. ANSWER Answer: TRUE Explanation: Ranking projects by PI with different costs levels CAN STILL LEAD to selection problems.
Date: September 19th, 2020
Which method is designed to give the dollar amount of return for every $1.00 invested in the project in terms of current dollars? A) Profitability Index Method B) Internal Rate of Return Method C) Net Present Value Method D) Discounted Payback Period Method ANSWER Answer: A
Date: September 19th, 2020
A firm is considering four projects with the following PIs, NPVs, and Costs. Project A: PI of 1.3, NPV of $3,600, and cost of $12,000; Project B: PI of 1.4, NPV of $5,600, and cost of $14,000; Project C: PI of 1.5, NPV of $5,000, and cost of $10,000; Project D: PI of 2.1, NPV […]
Date: September 19th, 2020
Wyatt and Zachary Enterprises (WZE) uses the Modified Internal Rate of Return (MIRR) when evaluating projects. WZE’s cost of capital is 9.75%. What is the MIRR of a project if the initial cost is $1,200,000 and the project will last seven years, with each year producing cash inflows of $290,000? Should WZE accept this project […]
Date: September 19th, 2020
