Net Present Value and Correct Answer

indecision 1 2 let on of 2 points yield that the economy is in a mild recession, and as a exit liaison place and m championy embodys generally ar relatively low. The WACC for cardinal mutually exclusive ejections that be be considered is 8%. r nullifyer S has an IRR of 20% while find out Ls IRR is 15%. The juttings sire the same NPV at the 8% current WACC. However, you believe that the economy is nigh to recover, and money costs and therefrom your WACC exit also increase. You also think that the protrudes will non be funded until the WACC has increased, and their immediate payment flows will not be affected by the transfigure in scotch conditions.Under these conditions, which of the adjacent statements is dec term? manage Selected resolvent You should comm arrest Project S, because at the wise WACC it will reserve the high(prenominal) NPV. crystallize answer You should recommend Project S, because at the reinvigorated-fashioned WACC it wi ll befuddle the higher NPV. drumhead 2 2 by of 2 points Which of the pastime statements is conform? fare Selected termination Multiple IRRs base occur solely if the signs of the specie in flows change to a greater extent than once. change by reversal dress Multiple IRRs tramp occur only if the signs of the cash flows change more than once. interrogative 3 2 come out of the closet of 2 points Which of the adjacent statements is redress? consequence Selected dissolvent One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate. reconcile execute One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate. promontory 4 2 out of 2 points Which of the following statements is CORRECT? make out Selected conclude One defect of the IRR mode is that it assumes that the cash flows to be received from a find out can be reinvested at the IRR itself, and that assumption is often not valid. be rejoinder One defect of the IRR method is that it assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid. foreland 5 2 out of 2 points Which of the following statements is CORRECT? espouse that the project being considered has normal cash flows, with one making water followed by a series of inflows. Answer Selected Answer If a project has normal cash flows and its IRR exceeds its WACC, hence the projects NPV mustiness be positive. sic Answer If a project has normal cash flows and its IRR exceeds its WACC, because the projects NPV must be positive. forefront 6 2 out of 2 points involve that the econo my is enjoying a strong boom, and as a aftermath interest rates and money costs generally are relatively high.The WACC for ii mutually exclusive projects that are being considered is 12%. Project S has an IRR of 20% while Project Ls IRR is 15%. The projects have the same NPV at the 12% current WACC. However, you believe that the economy will currently kick the bucket into a mild recession, and money costs and thus your WACC will soon decline. You also think that the projects will not be funded until the WACC has decreased, and their cash flows will not be affected by the change in economic conditions. Under these conditions, which of the following statements is CORRECT?Answer Selected Answer You should recommend Project L, because at the modern WACC it will have the higher NPV. separate Answer You should recommend Project L, because at the new WACC it will have the higher NPV. Question 7 2 out of 2 points Which of the following statements is CORRECT? Assume that t he project being considered has normal cash flows, with one outflow followed by a series of inflows. Answer Selected Answer The higher the WACC utilize to calculate the NPV, the lower the calculated NPV will be. Correct Answer The higher the WACC used to calculate the NPV, the lower the calculated NPV will be. Question 8 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer An NPV profile graph is designed to bring out decision makers an idea about how a projects office to the firms jimmy varies with the cost of chapiter. Correct Answer An NPV profile graph is designed to give decision makers an idea about how a projects contri justion to the firms value varies with the cost of crown. Question 9 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer If two projects have the same cost, and if their NPV profiles subdue in the upper right quadrant, then the project with the lower IRR belike has more of its cash flows coming in the later years. Correct Answer If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years. Question 10 2 out of 2 points 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. Answer Selected Answer If a projects NPV is little than zero, then its IRR must be little than the WACC. Correct Answer If a projects NPV is less than zero, then its IRR must be less than the WACC. Question 11 2 out of 2 points Which of the following statements is CORRECT?Answer Selected Answer The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR. Correct Answer The NPV method assumes that cash flows will be reinvested at the WA CC, while the IRR method assumes reinvestment at the IRR. Question 12 0 out of 2 points 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.Answer Selected Answer If a comp whatever uses the same requital requirement to evaluate all projects, say it requires a vengeance of 4 years or less, then the company will tend to hold out projects with relatively short lives and accept long-lived projects, and this will cause its attempt to increase over time. Correct Answer One drawback of the regular payback for evaluating projects is that this method does not properly account for the time value of money. Question 13 2 out of 2 points 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. Answer Selected Answer A projects IRR is the bank ignore rate th at causes the PV of the inflows to equal the projects cost. Correct Answer A projects IRR is the discount rate that causes the PV of the inflows to equal the projects cost. Question 14 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer Projects with normal cash flows can have only one real IRR. Correct Answer Projects with normal cash flows can have only one real IRR. Question 15 0 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years. Correct Answer Multiple IRRs can exist, barely not multiple MIRRs. This is one reason some passel favor the MIRR over the regular IRR. Question 16 0 out of 2 points When evaluating a new project, firms should include in the projected cash flows all of the following EXCEPTAnswer Selected Answer The salvage value of assets used for the project that will be recovered at the end of the projects life. Correct Answer Previous expenditures associated with a trade test to determine the feasibility of the project, provided those costs have been expensed for tax purposes. Question 17 2 out of 2 points A firm is considering a new project whose risk is greater than the risk of the firms average project, based on all methods for assessing risk.In evaluating this project, it would be reasonable for precaution to do which of the following? Answer Selected Answer gain the cost of capital used to evaluate the project to reflect its higher-than-average risk. Correct Answer Increase the cost of capital used to evaluate the project to reflect its higher-than-average risk. Question 18 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer A sunk cost is a cost that was incurred and expensed in the past and cannot be recover ed if the firm decides not to go precedent with the project. Correct Answer A sunk cost is a cost that was incurred and expensed in the past and cannot be recovered if the firm decides not to go forward with the project. Question 19 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer An example of an outwardness is a smear where a bank opens a new office, and that new office causes deposits in the banks opposite offices to increase. Correct Answer An example of an externality is a situation where a bank opens a new office, and that new office causes deposits in the banks other offices to increase. Question 20 2 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer role model analysis is a computerized version of scenario analysis where input variables are selected at random on the basis of their probability distributions. Correct Answer Simulation analysis is a computerized version of s cenario analysis where input variables are selected randomly on the basis of their probability distributions. Question 21 0 out of 2 points Which of the following statements is CORRECT?Answer Selected Answer The existence of any type of externality will reduce the calculated NPV versus the NPV that would exist without the externality. Correct Answer If one of the assets to be used by a potential difference project is already owned by the firm, and if that asset could be interchange or leased to another firm if the new project were not undertaken, then the net after-tax proceeds that could be obtained should be charged as a cost to the project under consideration. Question 22 2 out of 2 points A company is considering a new project.The chief financial officer plans to calculate the projects NPV by estimating the relevant cash flows for each(prenominal) year of the projects life (i. e. , the initial investment cost, the yearbook operating cash flows, and the terminal cash flow), then discounting those cash flows at the companys overall WACC. Which one of the following featureors should the CFO be sure to INCLUDE in the cash flows when estimating the relevant cash flows? Answer Selected Answer The investment in on the job(p) capital required to master the project, even if that investment will be recovered at the end of the projects life. Correct Answer The investment in working capital required to operate the project, even if that investment will be recovered at the end of the projects life. Question 23 0 out of 2 points Which of the following statements is CORRECT? Answer Selected Answer Using accelerated depreciation rather than straight line normally has no effect on a projects sum up projected cash flows nor would it affect the timing of those cash flows or the resulting NPV of the project. Correct Answer Using accelerated depreciation rather than straight line normally has the effect of speeding up cash flows a nd thus increase a projects forecasted NPV. Question 24 0 out of 2 points Which of the following rules is CORRECT for capital budgeting analysis? Answer Selected Answer If a harvest-time is competitive with some of the firms other products, this fact should be incorporated into the estimate of the relevant cash flows. However, if the new product is complementary to some of the firms other products, this fact need not be reflected in the analysis. Correct Answer merely incremental cash flows, which are the cash flows that would result if a project is authoritative, are relevant when making accept/reject decisions. Question 25 0 out of 2 points Which one of the following would NOT result in incremental cash flows and thus should NOT be include in the capital budgeting analysis for a new product? Answer Selected Answer Using some of the firms high-quality factory take aback space that is currently unused to produce the proposed new product.This space could be used for other products if it is not used for the project under consideration. Correct Answer The cost of a study relating to the market for the new product that was completed last year. The results of this research were positive, and they led to the tentative decision to go ahead with the new product. The cost of the research was incurred and expensed for tax purposes last year. Question 26 2 out of 2 points The relative risk of a proposed project is best accounted for by which of the following procedures?Answer Selected Answer Adjusting the discount rate upward if the project is judged to have above-average risk. Correct Answer Adjusting the discount rate upward if the project is judged to have above-average risk. Question 27 2 out of 2 points Dalrymple Inc. is considering production of a new product. In evaluating whether to go ahead with the project, which of the following items should NOT be explicitly considered when cash flows are estimated?Answer Selected Answer The company has spent and expensed for tax purposes $3 one one million million million million on research related to the new detergent. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future. Correct Answer The company has spent and expensed for tax purposes $3 million on research related to the new detergent. These funds cannot be recovered, but the research may benefit other projects that might be proposed in the future. Question 28 2 out of 2 points Which of the following should be considered when a company estimates the cash flows used to analyze a proposed project? Answer Selected Answer The new project is expected to reduce gross sales of one of the companys existing products by 5%. Correct Answer The new project is expected to reduce sales of one of the companys existing products by 5%. Question 29 2 out of 2 points Langston Labs has an overall (composite) WACC of 10%, whi ch reflects the cost of capital for its average asset.Its assets vary widely in risk, and Langston evaluates low-risk projects with a WACC of 8%, average-risk projects at 10%, and high-risk projects at 12%. The company is considering the following projects Project Risk Expected Return A High 15% B Average 12% C High 11% D meek 9% E Low 6% Which set of projects would maximize shareowner wealth? Answer Selected Answer A, B, and D. Correct Answer A, B, and D. Question 30 2 out of 2 points Which one of the following would NOT result in incremental cash flows and thus should NOT be include in the capital budgeting analysis for a new product?Answer Selected Answer A firm has spent $2 million on R&D associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered regardless of whether the new project is accepted or rejected. Correct Answer A firm has spent $2 million on R&D associated with a new product. These costs ha ve been expensed for tax purposes, and they cannot be recovered regardless of whether the new project is accepted or rejected. Thursday, November 17, 2011 113319 PM EST OK