A) The internal rate of return method (IRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
B) The payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
C) The discounted payback method is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
D) The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
E) The modified internal rate of return method (MIRR) is generally regarded by academics as being the best single method for evaluating capital budgeting projects.
G) C) and E)
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A) The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount, which the NPV method provides.
B) The discounted payback method eliminates all of the problems associated with the payback method.
C) When evaluating independent projects, the NPV and IRR methods often yield conflicting results regarding a project's acceptability.
D) To find the MIRR, we discount the TV at the IRR.
E) A project's NPV profile must intersect the X-axis at the project's WACC.
G) B) and E)
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A) 2.03 years
B) 2.25 years
C) 2.50 years
D) 2.75 years
E) 3.03 years
G) A) and B)
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A) $250.15
B) $277.94
C) $305.73
D) $336.31
E) $369.94
G) B) and D)
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A) The crossover rate must be less than 10%.
B) The crossover rate must be greater than 10%.
C) If the WACC is 8%, Project X will have the higher NPV.
D) If the WACC is 18%, Project Y will have the higher NPV.
E) Project X is larger in the sense that it has the higher initial cost.
G) None of the above
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B) False
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B) False
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A) Since the smaller project has the higher IRR, the two projects' NPV profiles cannot cross, and the smaller project's NPV will be higher at all positive values of WACC.
B) Since the smaller project has the higher IRR, the two projects' NPV profiles will cross, and the larger project will look better based on the NPV at all positive values of WACC.
C) If the company uses the NPV method, it will tend to favor smaller, shorter-term projects over larger, longer-term projects, regardless of how high or low the WACC is.
D) Since the smaller project has the higher IRR but the larger project has the higher NPV at a zero discount rate, the two projects' NPV profiles will cross, and the larger project will have the higher NPV if the WACC is less than the crossover rate.
E) Since the smaller project has the higher IRR and the larger NPV at a zero discount rate, the two projects' NPV profiles will cross, and the smaller project will look better if the WACC is less than the crossover rate.
G) C) and E)
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