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Manal Elkhoshkhany
Manal Elkhoshkhany, Bachelor's Degree
Category: Multiple Problems
Satisfied Customers: 9481
Experience:  Completed by BA degree in 1988 and graduated with a GPA of 4.0
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Which of the following statements is CORRECT? Answer If

Customer Question

Which of the following statements is CORRECT?
Answer If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.
If Project A's IRR exceeds Project B's, then A must have the higher NPV.
A project's MIRR can never exceed its IRR.
If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.
If the NPV is negative, the IRR must also be negative.
.
2 points
Question 10

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.
.
2 points
Question 11

Simkins Renovations Inc. is considering a project that has the following cash flow data. What is the project's IRR? Note that a project's IRR can be less than the WACC (and even negative), in which case it will be rejected.


Year 0 1 2 3 4
Cash flows -$850 $300 $290 $280 $270


Answer 13.13%
14.44%
15.89%
17.48%
19.22%
.
2 points
Question 12

Fool Proof Software is considering a new project whose data are shown below. The equipment that would be used has a 3-year tax life, and the allowed depreciation rates for such property are 33%, 45%, 15%, and 7% for Years 1 through 4. Revenues and other operating costs are expected to be constant over the project's 10-year expected life. What is the Year 1 cash flow?


Equipment cost (depreciable basis) $65,000
Sales revenues, each year $60,000
Operating costs (excl. deprec.) $25,000
Tax rate 35.0%


Answer $30,258
$31,770
$33,359
$35,027
$36,778
.
2 points
Question 13

Taggart Inc. is considering a project that has the following cash flow data. What is the project's payback?


Year 0 1 2 3
Cash flows -$1,150 $500 $500 $500


Answer 1.86 years
2.07 years
2.30 years
2.53 years
2.78 years
.
2 points
Question 14

A company is considering a proposed new plant that would increase productive capacity. Which of the following statements is CORRECT?
Answer In calculating the project's operating cash flows, the firm should not deduct financing costs such as interest expense, because financing costs are accounted for by discounting at the WACC. If interest were deducted when estimating cash flows, this would, in effect, "double count" it.
Since depreciation is a non-cash expense, the firm does not need to deal with depreciation when calculating the operating cash flows.
When estimating the project's operating cash flows, it is important to include both opportunity costs and sunk costs, but the firm should ignore the cash flow effects of externalities since they are accounted for in the discounting process.
Capital budgeting decisions should be based on before-tax cash flows.
The WACC used to discount cash flows in a capital budgeting analysis should be calculated on a before-tax basis.
.
2 points
Question 15

Which of the following statements is CORRECT?
Answer The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the IRR.
The NPV method assumes that cash flows will be reinvested at the risk-free rate, while the IRR method assumes reinvestment at the IRR.
The NPV method assumes that cash flows will be reinvested at the WACC, while the IRR method assumes reinvestment at the risk-free rate.
The NPV method does not consider all relevant cash flows, particularly cash flows beyond the payback period.
The IRR method does not consider all relevant cash flows, particularly cash flows beyond the payback period.
.
2 points
Submitted: 1 year ago.
Category: Multiple Problems
Expert:  FiveStarLaw replied 1 year ago.
Hello,


Thank you for your question

I am working on your answer. One moment please.
Expert:  FiveStarLaw replied 1 year ago.
Unfortunately I will not be able to respond in a timely manner. I will opt out so that another expert may assist you
Customer: replied 1 year ago.
Ok
Expert:  Manal Elkhoshkhany replied 1 year ago.

Hello Chikito

Did you get the solutions I posted?

Customer: replied 1 year ago.
Yes
Expert:  Manal Elkhoshkhany replied 1 year ago.

ok, please rate the solution as I do not get paid unless you rate the solution

I am working on the above questions

Customer: replied 1 year ago.
Hi Please i still haven't seen the reply to my second question .
Expert:  Manal Elkhoshkhany replied 1 year ago.

Yes, here you go :)



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