QUESTION 1 The IRR is a rate of return at which the NPV is equal to zero. True F

Question

QUESTION 1

The IRR is a rate of return at which the NPV is equal to zero.

True

False

5 points   

QUESTION 2

IRR provides information about a project's safety margin.

True

False

5 points   

QUESTION 3

Consider the following two projects.

Project A: IRR=15%, Cost of capital = 12%

Project B: IRR=18%, Cost of capital=20%

Project B should be chosen.

True

False

5 points   

QUESTION 4

Stategic business plan is a short-run plan that outlines in broad terms the firm's basic strategy for the next year.

True

False

5 points   

QUESTION 5

The discounted payback ignores cash flows beyond the payback year.

True

False

5 points   

QUESTION 6

The MIRR method assumes that cash flows can be reinvested at the project's IRR.

True

False

5 points   

QUESTION 7

If a project has nonnormal cash flows, the project might have multiple IRRs.

True

False

5 points   

QUESTION 8

A project that costs $100 is expected to generate $120 next year. Its IRR is 20%.

True

False

5 points   

QUESTION 9

Consider the following two mutually exclusive projects.

Project A: IRR = 20%, NPV = $100 million

Project B: IRR = 15%, NPV = $150 million

In terms of the firm's primary goal, Project A should be chosen.

True

False

5 points   

QUESTION 10

NPV and IRR can produce conflicting conclusion when a choice is being made between mutually exclusive projects.

True

False

5 points   

QUESTION 11

The net present value method assumes that all cash flows should be discounted at the project's IRR.

True

False

5 points   

QUESTION 12

Two projects have the same NPV at their crossover rate.

True

False

5 points   

QUESTION 13

The NPV profile shows the relationship between the NPV and the IRR.

True

False

5 points   

QUESTION 14

If Project A's IRR is greater than Project B's IRR, Project A's NPV must be greater than Project B's NPV.

True

False

5 points   

QUESTION 15

The payback method provides information about the project's liquidity and risk.

True

False

5 points   

QUESTION 16

A project that costs $100 is expected to produce $50 per year for 5 years. The project's payback period is 2 years.

True

False

5 points   

QUESTION 17

The reinvestment assumption built into the NPV is more reasonable than the reinvestment assumption built into the IRR.

True

False

5 points   

QUESTION 18

The payback method ignores the time value of money whereas the discounted payback method consider the time value of money.

True

False

5 points   

QUESTION 19

Project A and Project B have $10 million NPV and $5 million NPV respectively. If they are independent projects, only Project A should be chosen.

True

False

5 points   

QUESTION 20

A project's MIRR is positive, it should be acceptable.

True

False

5 points   

Explanation / Answer

1) True

2) True

3) False project A should be chosen

4) False

5) False

6) True

7) False

8) False

9) False

10) True

11) False

12) True

13) False

14) True

15) True

16) True

17) False

18) True

19) True

20) True

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