8. Conclusions about capital budgeting Which of the following conclusions about

Question

8. Conclusions about capital budgeting Which of the following conclusions about capital budgeting are valid? Check all that apply. Because NPV is the best project criterion, only it should be used and the other criteria should be ignored. The NPV is the best project criterion because it shows how much value the company is creating for its shareholders. Managers have been slow to adopt the IRR because percentage returns are a harder concept for them to grasp. Because the MIRR and NPV use the same reinvestment rate assumption, they always lead to the same accept/reject decision for mutually exclusive projects. For most firms, the reinvestment rate assumption in the NPV is more realistic than the assumption in the IRR.

Explanation / Answer

Answer:

Statement 1 is Incorrect:

Because NPV is best criteria but other criteria are also used for projects evaluation.

Statement 2 is Correct ; Because NPV calculates the value of investment proposals.

Statement 3 is Incorrect : Because Managers understand % returns easily and hence IRR is a easy criteria for them.

Statement 4 is Incorrect : Because MIRR and NPV assumes different assumptions

Statement 5 is correct: Becuase IRR assumes reinvetsment at IRR that is not realsitic.

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