b.)\"Assume you are evaluating 3 mutually exclusive investment projects, the NPV

Question

b.)"Assume you are evaluating 3 mutually exclusive investment projects, the NPV rule and IRR rule will give the same absolute yes/no decision on each project and will also generate the same relative rankings (i.e. they will agree on what is the best and what is the worst project.)"

True

False

c.)You calculate a project s expected cash flows with straight line depreciation and then with accelerated depreciation. The NPV of the project will be greater with the accelerated depreciation cash flows.

True

False

d.)"Assume that a project has the following cash flows: -170 / 30 / 40 / 50 / 60 / 70. Given the risk of the project, assume that the hurdle rate is 10%. The IRR of this project will be:"

Less than 10%

Equal to 10%

Greater than 10%

You can t tell with the information that is given.

Less than 10%

Equal to 10%

Greater than 10%

You can t tell with the information that is given.

Explanation / Answer

b) the above statement is FALSE ( in fact they wouldnt generate the same rankings)

c) the statement is TRUE ( when there is accelerated depreciation the tax liability of the project will come down so the cash flows will increase which increases the NPV )

d) the IRR of this project is more than 10%(the NPV of the project at 10% intrest for 5 years is more than PV i.e

PV value of the cash inflow is 182.21 where as the PV of the cash out flow is 170 so lower than 10 % is required)

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