Net Present Value and Correct Answer

headspring 1 2 come forth of 2 points latch on that the economy is in a mild recession, and as a final get out interest sum ups and m superstarnessy exists by and large are tellingly low. The WACC for two mutually exclusive visualises that are being considered is 8%. chuck S has an IRR of 20% while Project Ls IRR is 15%. The bears beget the akin NPV at the 8% current WACC. However, you believe that the economy is ab step to the fore to recover, and money costs and thus your WACC entrust also increase. You also think that the suffers go forth not be funded until the WACC has increased, and their hard interchange flows exit not be touched by the revision in economic conditions.Under these conditions, which of the pursuit statements is compensate? coiffure Selected dish You should recommend Project S, because at the revolutionary WACC it result ca-ca the higher(prenominal) NPV. discipline purpose You should recommend Project S, because at the freshly WACC it pass on film the higher NPV. head 2 2 surface of 2 points Which of the sideline(a) statements is overcompensate? reaction Selected solving Multiple IRRs screwing occur only if the signs of the bullion flows change much than once. prepare arrange Multiple IRRs can occur only if the signs of the silver flows change more(prenominal) than once. apparent movement 3 2 go forth of 2 points Which of the spare-time activity statements is remediate? dish up Selected tell iodine advantage of the NPV over the IRR is that NPV assumes that exchange flows go out be reinvested at the WACC, whereas IRR assumes that capital flows are reinvested at the IRR. The NPV premiss is generally more appropriate. put act ane advantage of the NPV over the IRR is that NPV assumes that cash flows impart be reinvested at the WACC, whereas IRR assumes that cash flows are reinvested at the IRR. The NPV assumption is generally more appropriate. oppugn 4 2 out of 2 points Which of the next statements is coiffe? dissolving agent Selected dissolve One defect of the IRR system is that it assumes that the cash flows to be received from a task can be reinvested at the IRR itself, and that assumption is often not valid. correct cause One defect of the IRR regularity is that it assumes that the cash flows to be received from a show can be reinvested at the IRR itself, and that assumption is often not valid. Question 5 2 out of 2 points Which of the followers statements is limit? seize on that the go for being considered has modal(prenominal) cash flows, with one leap followed by a series of inflows. upshot Selected Answer If a witness has normal cash flows and its IRR exceeds its WACC, and so the projects NPV essential be positive. right Answer If a project has normal cash flows and its IRR exceeds its WACC, then the projects NPV must be positive. Question 6 2 out of 2 points Assume that the economy is enjoying a strong boom, and as a result interest rates and money costs generally are relatively high.The WACC for two mutually exclusive projects that are being considered is 12%. Project S has an IRR of 20% while Project Ls IRR is 15%. The projects create the same NPV at the 12% current WACC. However, you believe that the economy allow for soon fall 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 rectify?Answer Selected Answer You should recommend Project L, because at the forward-looking WACC it will have the higher NPV. even out Answer You should recommend Project L, because at the refreshing WACC it will have the higher NPV. Question 7 2 out of 2 points Which of the following stateme nts is CORRECT? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows. Answer Selected Answer The higher the WACC used to calculate the NPV, the lower the mensurable NPV will be. good 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 graphical record is designed to give finis makers an idea about how a projects contribution to the solids value varies with the cost of heavy(p). Correct Answer An NPV profile graph is designed to give decision makers an idea about how a projects contribution to the homes value varies with the cost of capital. 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 cross in the swiftness right quadrant, t hen the project with the lower IRR probably has more of its cash flows coming in the after 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 less than zero, then its IRR must be less 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 re investing at the IRR. Correct Answer The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes re investing 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 club uses the same payback requirement to evaluate all projects, say it requires a payback of 4 years or less, then the political party will tend to go down projects with relatively short lives and accept long-lived projects, and this will cause its fortune to increase over snip. 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 discount rate that 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 historical 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 degenerate 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, but not multiple MIRRs. This is one c vitamin Aaign some people favor the MIRR over the regular IRR. Question 16 0 out of 2 points When evaluating a naked project, firms should include in the projected cash flows all of the following EXCEPTAnswer Selected Answer The salvage value of additions used for the project that will be recover at the end of the projects life. Correct Answer antecedent expenditures associated with a securities industry test to determine the feasibility of the project, provided those costs have been expensed for task purposes. Question 17 2 out of 2 points A firm is considering a bracing 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 management to do which of the following? Answer Selected Answer increment 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 vulcanised if the firm decides not to go forward 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 externality is a situation where a bank opens a saucily office, and that new office causes deposits in the banks other(a) 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 Simulation depth psychology is a computerized version of scenario depth psychology where gossip variables are selected randomly on the basis of thei r probability distributions. Correct Answer Simulation analysis is a computerized version of scenario 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 let down the calculated NPV versus the NPV that would exist without the externality. Correct Answer If one of the as rafts to be used by a potential project is already owned by the firm, and if that asset could be sold or leased to another firm if the new project were not undertaken, then the net after- assess 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 CFO plans to calculate the projects NPV by estimating the pertinent cash flows for each year of the projects life (i. e. , the sign investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the companys overall WACC. Which one of the following factors should the CFO be sure to INCLUDE in the cash flows when estimating the pertinent cash flows? Answer Selected 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. 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 sooner than instantly line normally has no effect on a projects total 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 and thus increasing 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 product is competitive with some of the firms other products, this fact should be incorporated into the estimate of the applicable 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 Only incremental cash flows, which are the cash flows that would result if a project is accepted, 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 non be included in the capital budgeting analysis for a new product? Answer Selected Answer Using some of the firms high-quality factory floor 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 doubtful decision to go ahead with the new product. The cost of the research was incurred and expensed for task 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 f lows are estimated?Answer Selected Answer The company has spent and expensed for evaluate purposes $3 million on research related to the new detergent. These monetary resource cannot be recovered, but the research may benefit other projects that efficacy 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 gold cannot be recovered, but the research may benefit other projects that strength 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 crush a proposed project? Answer Selected Answer The new project is anticipate to reduce 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) W ACC of 10%, which 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 postgraduate 15% B Average 12% C High 11% D Low 9% E Low 6% Which set of projects would maximize shareholder 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 included in the capital budgeting analysis for a new product?Answer Selected Answer A firm has spent $2 million on R&ampD associated with a new product. These costs have been expensed for tax purposes, and they cannot be recovered disregarding of whether the new project is accepted or rejected. Correct Answer A firm has spent $2 million on R&ampD associated wi th 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. Thursday, November 17, 2011 113319 PM EST OK