13) The Internal Rate of Return is a. The discount rate where the greatest retur
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Question
13) The Internal Rate of Return is a. The discount rate where the greatest return is achieved b. The yield where the discount rate 0 c. more effective than MIRR because MIRR can assume an unrealistic reinvestment rate less effective than MIRR because IRR assumes a reinvestment rate that may not be realistic d. 14) When two projects have different life cycles: It is difficult to compare them effectively so we consider only cash flows We consider MIRR first since this method most effectively considers time disparity We select the project with the shortest discounted payback period We should convert the cash flows of each project to an equivalent annual annuity based on each project's NPV a. b. c. d. 15) We are considering two mutually exclusive projects with different life cycles. Which information should we consider in settling ranking conflicts? PROJECT A PROJECT B 500 S500 $500 300 $300 $300 $300 $300 $300 1 2 3 years 1 2 3 45 6years $1,000 1,000 NPV = $306.58 NPV = $243.43 P-1.243 IRR = 23.4% IRR 19.9% a. b. c. d. Project A is better because it has the higher IRR Project B is better because it yields higher cash flows Project A is better because it has a better EAA Project B is better because it has a longer payback periodExplanation / Answer
13.
Internal rate of return is less effective than MIRR becaus eof reinvestment assumption. MIRR assumes all reinvestment at cost of capital rate, which seems more realistic but IRR assume all reinvestment at IRR rate which is not realistic.
Option (D) is correct answer.
14.
When Two project has different lives then we use MIRR methods for capital budgeting evaluation because this method is most effectively consider time disparity.
Option (B) is correct answer.
15.
In mutually exclusive project we use NPV method to evaluate project. A project with higher NPV should be accepted. Here NPV of project B is higher than NPV of project A.
So, option (B) is correct answer.
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