Total Asset) is 50%, the interest rate on new debt is ws, the rate is 40% An inc
ID: 2796837 • Letter: T
Question
Total Asset) is 50%, the interest rate on new debt is ws, the rate is 40% An increase in the debt ratio to 60% Suppone the debe ratio (Det/T Re cost of capital (WACC being considered b False IRR 7 Which of the ollowing statements are CORRECT? Assume that the project The hugher the calicalate the NPy, the lower the calculated NPV will be. If a proect's NPV is greater than zero, then its IRR must be less than the WACC has normal cash ows with one outflow followed by a series of nlowe bile the IRR flows will be reinvested at the WACC, while d. If a project's NV e Two of the above answers is greater than zero, then its IRR must be less than zero. than aero are correct the IRR method for s The prinary reason that the NPV method is conceptually superior to th happens, we don t know which IRR is relevant ppns we don t know which Iat multiple IRRs may exist, and when that a. True b False 9 Projects S and L both have an initial cost of $10,000. Project S's undiscounted net cash flows total saaoon while L's total undiscounted Bows are SO,000. A-WACC of 10%,, the two preects have identical NPV's. Which project's NPV is more sensitive to changes in the Both projvets are equaily sensitive to changes in the WACC since their NPVs are equal at all ACC? a ProjectS T. costs of capital. d eher proiectis sensitive to changes in the discount rate, since both have NPV profiles that are horizontal e The solution cannot be determined because the problem gives us no information that can be used to determine the projects' relative IRRs 10. Stern Associates is considering a project that has the following cash flow data. What is the project's payback? Year Cash flows 2$320 -$1,100 5300 a. 2.31 years 5330 $340 b. 256 years c 285 years d. 3.16 years e. 3.52 years 11. Changes in net operating working capital should not be reflected in a capital budgeting cash flow analysis because capital budgeting relates to fixed assets, not working capit a. True b. False. 12. Which of the following statement about cash flow is false? If debt is to be used to finance a project, then when cash flows for a project are estimated, interest payments should be included in the analysis. a.Explanation / Answer
6)
The NPV method assumes that cash flows will be reinvested at the cost of capital while the IRR method assumes reinvestment at the IRR
8) True
7)
The NPV method assumes that cash flows will be reinvested at the cost of capital while the IRR method assumes reinvestment at the IRR
8) True