When using internal rate of return for project evaluation, you can meet the following problems: A)No solution or more than one solution B)Internal rate of return can not be calculated for bonds. C)The same rule for all evaluated decisions: IRR>r D)IRR gives dijerent result than NPV

When using internal rate of return for project evaluation, you can meet the following problems: A)No solution or more than one solution B)Internal rate of return can not be calculated for bonds. C)The same rule for all evaluated decisions: IRR>r D)IRR gives dijerent result than NPV

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter12: Capital Investment Decisions

Section: Chapter Questions

Problem 16MCQ: Using IRR, a project is rejected if the IRR a. is equal to the required rate of return. b. is less...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

When using internal rate of return for project evaluation, you can meet the following problems:
a.
No solution or more than one solution
b.
Internal rate of return can not be calculated for bonds.
C.
The same rule for all evaluated decisions: IRR>r
d.
IRR gives different result than NPV

Definition Definition Calculation used to evaluate the investment and financing decisions that involve cash flows occurring over multiple periods. NPV is calculated as the difference between the present value of cash inflow and cash outflow. NPV is used for capital budgeting and investment planning as well as to compare similar investment alternatives.

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Which of the following statements is (are) true about project appraisal methods: (i) NPV is the best measure for project appraisal even when capital is rationed. (ii) IRR measures percentage returns of an investment rather than added value. (iii) Contrary to real options, NPV assumes a now or never decision to invest.
One of the advantages of Internal Rate of Return is: O a. It gives the closest rate of return O b. None of these c. Calculations are complex in nature O d. It ignores the reinvestment potential
Differences between the ERR and the IRR include the following: a. The ERR will yield a unique solution (no multiple rates of return as in the IRR) b. In the ERR, funds recovered from the investment are assumed to earn returns equal to the MARR c. The ERR is always a value somewhere between the IRR and the MARR d. All of the above.
One of the advantages of Internal Rate of Return is: a. Calculations are complex in nature b. It gives the closest rate of return c. It ignores the reinvestment potential d. None of these
n 0 1 2 3 4 5 6 7 8 9 10 A -$250 $60 $970 B -$200 $90 $90 $60 $60 Net Cashflow с -$70 $20 $10 $5 -$50 $60 $50 $40 $30 $20 $10 D -$300 $270 $250 -$129 -$20 $120 $40 E -$90 -$100 -$50 $0 $150 $150 $100 $100
A project is accepted if, I) II) III) IV) V) Net present value of the project is positive. IRR is lower than cost of capital. Modified internal rate of return is greater than cost of capital. Profitability index is greater than 1. Payback period is lower than the acceptable payback period. Which of the above statements are correct? А. I, I and II. B. I and IV С. I, II, IV, and V D. All of the above. ------
A project is accepted if, I) II) III) IV) V) Net present value of the project is positive. IRR is lower than cost of capital. Modified internal rate of return is greater than cost of capital. Profitability index is greater than 1. Payback period is lower than the acceptable payback period. Which of the above statements are correct? A. I, II and III. B. I and IV C. I, III, IV, and V D. All of the above
6. Which of the following statements is / are TRUE about the payback period method of investment appraisal? (i) It uses discounted profits (ii) It may result in a project with a negative NPV being accepted (iii) It looks at the whole life of the project (iv) It favours lower risk projects (on the basis that risk is time related) a (i) and (iii) b (i) and (iv) c (ii) and (iv) d (ii) and (iii)
The relationship between NPV and IRR is such thata. both approaches always provide the same ranking of alternative investment projects.b. the IRR of a project is equal to the firm's cost of capital if the NPV of a project is $0.c. if the NPV of a project is negative, the IRR must be greater than the cost of capital.d. none of the above
Which of the following is a disadvantage of the internal rate of return criterion? Select one: a. It is not a true rate of return. b. It uses an arbitrary benchmark cutoff rate. c. It ignores time value of money, cash flows, and market values. d. It cannot be used to rank independent projects. e. It may lead to incorrect decisions when comparing mutually exclusive investments.
which of the following statement is true>? 1. return on equity is the ratio of total assets to total net income 2. one must know the discount rate to compute the npv of a project but one can compute the IRR without referring to the discount rate. 3. there will always be one IRR regardless of cash flows 4. one must know the discount rate to compute the IRR of a project but one can compute the NPV without referring to the discount rate 5. payback accounts for time value of money
project is accepted if, Net present value of the project is positive. IRR is lower than cost of capital. Modified internal rate of return is greater than cost of capital. Profitability index is greater than 1. I) II) III) IV) V) Payback period is lower than the acceptable payback period. Which of the above statements are correct? A. I, II and II. B. I and IV C. I, III, IV, and V D. All of the above.