Identical initial cash outflows Assignment | College Homework Help

15. Projects A and B have identical expected lives and identical initial cash outflows (costs). However, most of one project’s cash flows come in the early years, while most of the other project’s cash flows occur in the later years. The two NPV profiles are given below: NPV r () Which of the following statements is correct? A. More of Project B’s cash flows occur in the later years. B. The crossover rate is greater than either project’s IRR. C. More of Project A’s cash flows occur in the later years. D. More information on the cost of capital is needed to determine which project has the larger early cash flows. 16. An analyst has gathered the following data about a company with a 12% cost of capital: Cost Life Cash inflows Project P $15,000 5 years $5,000/year Project Q $25,000 5 years $7,500/year If Projects P and Q are mutually exclusive, what should the company do? A. Accept both Project P and Project Q. B. Reject both Project P and Project Q. C. Accept Project P and reject Project Q. D. Accept Project Q and reject Project P. 17. Projects C and D are mutually exclusive and have normal cash flows. Project C has a higher NPV If the WACC is less than 12%, whereas Project D has a higher NPV if the WACC exceeds 12%. Which of the following statements is correct? A. Project probably has a higher IRR. B. Project D probably has a higher IRR. C. Project D is probably larger in scale than Project C. D. The crossover rate between the two projects is below 12%. 18. Which of the following statements about capital budgeting techniques is correct? A. The higher the WACC, the shorter the discounted payback period. B. The MIRR method assumes that cash flows are reinvested at the crossover rate. C. The IRR method cannot be subject to the multiple IRR problem, while the MIRR method can be. D. One reason some analysts prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.

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