3. Which of the following is correct? a. Conflicts between two mutually exclusiv

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3. Which of the following is correct? a. Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one project higher but the IRR method ranks the other one first. In theory, such conflicts should be resolved in favor of the project with the higher positive IRR. A basic rule in capital budgeting is that if a project's NPV exceeds its IRR, then the project should be accepted. A project's MIRR is independent of the firm's cost of capital. In other words, a project's MIRR doesn't change with a change in the firm's cost of capital. Conflicts between two mutually exclusive projects occasionally occur, where the NPV method ranks one b. c. d. project higher but the IRR method ranks the other one first. in theory, uch conflicts should be resolved in he other one first. In theory, such conflicts should be resolved in favor of the project with the higher positive NPv. Richard Faber, CFO of Bellarmine Industries, is preparing a presentation on cash flow estimation and capital budgeting for the company's new class of interns. Which of the following statements is correct a. An example of an externality is a situation where a bank opens a new office, and that new office causes 4. deposits in the bank's other offices to decrease The existence of any type of externality will reduce the project's expected NPV. If one of the assets to be used by a potential project is already owned by the firm but not being used, then any cost associated with that asset is a sunk cost and should be ignored. An externality is a situation where a project would have an adverse effect on some other part of the firm. If the project would have a favorable effect on other operations, then this is not an externality b. c. d.

Explanation / Answer

3 d. NPV method is given preference to IRR method

4. a. since it impacts the other business

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