finance 300 ch 9-12

9-10 Which of the following statements is true of a project with larger early cash inflows?

. A project with larger early cash inflows provides more funds for reinvestment in the early years.

9-11 Alpha Inc. is evaluating three independent projects for investment—Project A, Project B, and Project C using the net present value (NPV) approach. The net present value (NPV) of Project A is $11,250, Project B is $31,650, and Project C is -$4,500. Assume that Alpha has sufficient capital to invest in all the projects. An efficient financial manager will take the capital budgeting decision in such a manner that the shareholders' wealth will increase by _____.

42,900

9-9 Which of the following statements is true of a project with net present value (NPV) of zero?

An NPV of zero signifies that the project's required rate of return is equal to its internal rate of return.

9-6 Which of the following is required to compute the internal rate of return (IRR) of a project?

The cash inflows and cash outflows for the project

9-8 Which of the following statements is true of the discounted payback period method?

The discounted payback period uses present value of cash flows to compute payback period.

9-3 Identify a limitation of the internal rate of return (IRR) method of capital budgeting.

The internal rate of return (IRR) can give multiple internal rates of returns (IRRs) for one project.

9-7 Which of the following statements is true of the internal rate of return (IRR) method?

Using the IRR method could lead to investment decisions that increase wealth but do not maximize it.

9-13 The recovery of a project's initial investment on a present value basis prior to the end of the project's useful life results in _____.

a positive net present value (NPV)

9-1 capital budgeting is outline of

planned expenditures on fixed assets

9-15 The net present value (NPV) method assumes that

the cash flows from a project can be reinvested at the firm's required rate of return

9-2 If two mutually exclusive capital budgeting projects have positive NPVs, then

the project with the highest NPV should be purchased

9-4 Which of the following methods gives a direct measure of the dollar benefit on a present value basis to the firm's shareholders?

NPV method

9-12 Which of the following capital budgeting methods is used if the projects being evaluated have multiple internal rates of return?

modified internal rate of return method

9-14 If two projects are of equal size and have the same life, then the _____ and the _____ will always lead to the same project selection decision.

net present value (NPV), modified internal rate of return (MIRR)

9-5 When computing a project's modified internal rate of return (MIRR), its terminal value is determined by computing the _____.

future value of expected cash inflows