1. Which of the following statements is CORRECT? Answer: The IRR method can neve
ID: 2642583 • Letter: 1
Question
1. Which of the following statements is CORRECT?
Answer:
The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.
One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.
The higher the WACC, the shorter the discounted payback period.
The MIRR method assumes that cash flows are reinvested at the crossover rate.
The MIRR and NPV decision criteria can never conflict.
2. An option that gives the holder the right to sell a stock at a specified price at some future time is
Answers
a put option.
an out-of-the-money option.
a naked option.
a covered option.
a call option.
3. BLW Corporation is considering the terms to be set on the options it plans to issue to its executives. Which of the following actions would decrease the value of the options, other things held constant?
Answers:
The exercise price of the option is increased.
The life of the option is increased, i.e., the time until it expires is lengthened.
The Federal Reserve takes actions that increase the risk-free rate.
BLW's stock price becomes more risky (higher variance).
BLW's stock price suddenly increases.
The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.
One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.
The higher the WACC, the shorter the discounted payback period.
The MIRR method assumes that cash flows are reinvested at the crossover rate.
The MIRR and NPV decision criteria can never conflict.
Explanation / Answer
Answer:
1. One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.
2. a put option.
3. The exercise price of the option is increased.
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