Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.

Get a Professional Answer

Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.

100% Satisfaction Guarantee

Rate the answer you receive.

Ask Manal Elkhoshkhany Your Own Question

Manal Elkhoshkhany, Tutor

Category: Finance

Satisfied Customers: 9833

Experience: More than 5000 online tutoring sessions.

3708793

Type Your Finance Question Here...

Manal Elkhoshkhany is online now

For Businesstutor:
Question 15
Which of the

Resolved Question:

For Businesstutor:

Question 15

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

A project’s regular IRR is found by compounding the cash inflows at the WACC to find the terminal value (TV), then discounting this TV at the WACC.

A project’s regular IRR is found by discounting the cash inflows at the WACC to find the present value (PV), then compounding this PV to find the IRR.

If a project’s IRR is greater than the WACC, then its NPV must be negative.

To find a project’s IRR, we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project’s costs.

To find a project’s IRR, we must find a discount rate that is equal to the WACC.

.

2 points

Question 16

Which of the following statements is CORRECT? Answer

An externality is a situation where a project would have an adverse effect on some other part of the firm’s overall operations. If the project would have a favorable effect on other operations, then this is not an externality.

An example of an externality is a situation where a bank opens a new office, and that new office causes deposits in the bank’s other offices to increase.

The NPV method automatically deals correctly with externalities, even if the externalities are not specifically identified, but the IRR method does not. This is another reason to favor the NPV.

Both the NPV and IRR methods deal correctly with externalities, even if the externalities are not specifically identified. However, the payback method does not.

Identifying an externality can never lead to an increase in the calculated NPV.

To find a project's IRR, we must solve for the discount rate that causes the PV of the inflows to equal the PV of the project's costs.

16)

An example of an externality is a situation where a bank opens a new office, and that new office causes deposits in the bank's other offices to increase.

Manal Elkhoshkhany and other Finance Specialists are ready to help you