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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.


A) The longer a project's payback period,the more desirable the project is normally considered to be by this criterion.
B) One drawback of the payback criterion for evaluating projects is that this method does not properly account for the time value of money.
C) If a project's payback is positive,then the project should be rejected because it must have a negative NPV.
D) The regular payback ignores cash flows beyond the payback period,but the discounted payback method overcomes this problem.
E) If a company uses the same payback requirement to evaluate all projects,say it requires a payback of 4 years or less,then the company will tend to reject projects with relatively short lives and accept long-lived projects,and this will cause its risk to increase over time.

F) B) and C)
G) A) and B)

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Simms Corp.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. Simms Corp.is considering a project that has the following cash flow data.What is the project's IRR? Note that a project's projected IRR can be less than the WACC or negative,in both cases it will be rejected. A) 4.96% B) 5.81% C) 7.12% D) 6.14% E) 6.53%


A) 4.96%
B) 5.81%
C) 7.12%
D) 6.14%
E) 6.53%

F) None of the above
G) B) and D)

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Last month,Lloyd's Systems analyzed the project whose cash flows are shown below.However,before the decision to accept or reject the project,the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative,in which case it should be rejected. Last month,Lloyd's Systems analyzed the project whose cash flows are shown below.However,before the decision to accept or reject the project,the Federal Reserve took actions that changed interest rates and therefore the firm's WACC.The Fed's action did not affect the forecasted cash flows.By how much did the change in the WACC affect the project's forecasted NPV? Note that a project's projected NPV can be negative,in which case it should be rejected. A) $37.00 B) $38.48 C) $32.19 D) $40.70 E) $44.03


A) $37.00
B) $38.48
C) $32.19
D) $40.70
E) $44.03

F) A) and C)
G) A) and D)

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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.


A) A project's NPV is generally found by compounding the cash inflows at the WACC to find the terminal value (TV) ,then discounting the TV at the IRR to find its PV.
B) The higher the WACC used to calculate the NPV,the lower the calculated NPV will be.
C) If a project's NPV is greater than zero,then its IRR must be less than the WACC.
D) If a project's NPV is greater than zero,then its IRR must be less than zero.
E) The NPVs of relatively risky projects should be found using relatively low WACCs.

F) A) and B)
G) C) and D)

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Fernando Designs is considering a project that has the following cash flow and WACC data.What is the project's discounted payback? Fernando Designs is considering a project that has the following cash flow and WACC data.What is the project's discounted payback? A) 1.53 years B) 1.29 years C) 1.56 years D) 1.72 years E) 1.61 years


A) 1.53 years
B) 1.29 years
C) 1.56 years
D) 1.72 years
E) 1.61 years

F) C) and D)
G) B) and E)

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The NPV and IRR methods,when used to evaluate two independent and equally risky projects,will lead to different accept/reject decisions and thus capital budgets if the projects' IRRs are greater than their costs of capital.

A) True
B) False

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The IRR method is based on the assumption that projects' cash flows are reinvested at the project's risk-adjusted cost of capital.

A) True
B) False

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