PRIN.OF CORPORATE FINANCE
13th Edition
ISBN: 9781260013900
Author: BREALEY
Publisher: RENT MCG
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Textbook Question
Chapter 10, Problem 2PS
Project analysis True or false?
- a. Sensitivity analysis is unnecessary for projects with asset betas that are equal to zero.
- b. Sensitivity analysis can be used to identify the variables most crucial to a project’s success.
- c. If only one variable is uncertain, sensitivity analysis gives “optimistic” and “pessimistic” values for project cash flow and
NPV . - d. The break-even sales level of a project is higher when break-even is defined in terms of NPV rather than accounting income.
- e. Risk is reduced when most of the costs are fixed.
- f. Monte Carlo simulation can be used to help
forecast cash flows.
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Students have asked these similar questions
Which statements are INCORRECT?
Check all that apply:
when IRR is positive, the project is acceptable
when profitability index is positive, the project is acceptable
a decrease in a firm's WACC will increase the attractiveness of the firm's
investment options
when required return is less than internal rate of return, the project is
acceptable
Which of the following statements is correct regarding the payback method?
Takes account of differences in size among projects.
If a project’s payback is positive, then the project should be accepted because it must have a zero NPV.
Ignores cash flows beyond the payback period.
Has an objective, market-determined benchmark for making decisions.
Directly account for the time value of money.
Which of the following statements is most FALSE?
A. If a project with normal cash flows has a positive NPV, it will definitely have
an MIRR greater than the cost of capital.
B. If a project with normal cash flows has an IRR that is greater than the cost of
capital, then taking on that project would decrease the value of the firm.
C. If a project has normal cash flows, then the MIRR has to be between k and
IRR if the project has positive interim cash flows (cash flows between t=0 and
the end of the project).
D. If a project with normal cash flows does not have any interim cash flows, the
project's IRR will equal the project's MIRR.
E. Multiple IRRS can exist for a project if the project has nonnormal cash flows.
OA
OB
OC
Chapter 10 Solutions
PRIN.OF CORPORATE FINANCE
Ch. 10 - Terminology Match each of the following terms to...Ch. 10 - Project analysis True or false? a. Sensitivity...Ch. 10 - Sensitivity analysis Otobais staff (see Section...Ch. 10 - Prob. 4PSCh. 10 - Prob. 7PSCh. 10 - Scenario analysis What is the NPV of the electric...Ch. 10 - Prob. 9PSCh. 10 - Break-even analysis Break-even calculations are...Ch. 10 - Prob. 11PSCh. 10 - Prob. 12PS
Ch. 10 - Prob. 13PSCh. 10 - Break-even analysis A financial analyst has...Ch. 10 - Fixed and variable costs In a slow year, Deutsche...Ch. 10 - Operating leverage You estimate that your cattle...Ch. 10 - Prob. 17PSCh. 10 - Prob. 20PSCh. 10 - Real options Explain why options to expand or...Ch. 10 - Prob. 22PSCh. 10 - Real options True or false? a. Decision trees can...Ch. 10 - Prob. 24PSCh. 10 - Real options An auto plant that costs 100 million...Ch. 10 - Decision trees Look back at the Vegetron electric...Ch. 10 - Prob. 27PSCh. 10 - Prob. 28PSCh. 10 - Prob. 29PSCh. 10 - Prob. 32PS
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Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Similar questions
- Using IRR, a project is rejected if the IRR a. is equal to the required rate of return. b. is less than the required rate of return. c. is greater than the cost of capital. d. is greater than the required rate of return. e. produces an NPV equal to zero.arrow_forwardWhen the present value of the cash inflows exceeds the initial cost of a project, then the project should be : A. rejected because NPV is negative. B. accepted because NPV is greater than 1. C. accepted because the profitability index is negative. D. rejected because the internal rate of return is negative.arrow_forwardWhich of the following statements is true? Multiple Cholce There Is no correlation between net present value and Internal rate of return. A project with a positive net present value will have a discount rate that Is greater than the Internal rate of return. None of the statements are true Glven several projects with positive net present values, the company should choose the project with the hlghest net present value. A project with a positive net present value will have a discount rate that Is less than the Internal rate of return.arrow_forward
- Below are some statements about risk and investment appraisal. Which one is incorrect? A. Risk-adjusted hurdle rates could be used to allow for the risk of a project B. Risk could be allowed for in a project by shortening the pay-back period C. While sensitivity analysis does not directly imbed risk in the appraisal process it is helpful for identifying "key" variables D. Risk decreases with the length of a project E. Probability analysis can be used to allow for the risk of different economic conditionsarrow_forwardIf a net present value analysis for a normal project gives an NPV greater than zero, an internal rate of return calculation on the same project would yield an internal rate of return ____ the firm's cost of capital.a. greater thanb. less thanc. equal tod. cannot be determined from the information givenarrow_forwardYou should accept a project when the ?: net present value is negative. profitability index is positive. payback period exceeds the required period. AAR is greater than the required return. 7. Which one of the following statements is correct? The payback period is also referred to as the benefit-cost ratio. The internal rate of return can be reliably used for all independent projects. The profitability index is used when the investment funds are limited. The net present value should not be used to rank mutually exclusive projects. 8. You should accept a project when the ?: net present value is negative. profitability index is less than 1 but greater than 0. discounted payback period is less than the required period. AAR is less than the required return. 9. The crossover point ? : is used to determine which one of two internal rates of return for a project should be used when determining if a project should be accepted. 2. is the…arrow_forward
- The project profitability index and the internal rate of return: Multiple Choice will always result in the same preference ranking for investment projects. will sometimes result in different preference rankings for investment projects. are less dependable than the payback method in ranking investment projects. are less dependable than net present value in ranking investment projects.arrow_forwardNet present value: Multiple Choice O is the best method of analyzing mutually exclusive projects. is less useful than the internal rate of return when comparing different-sized projects. cannot be applied when comparing mutually exclusive projects. is very similar in its methodology to the average accounting return. is the easiest method of evaluation for nonfinancial managers. 6arrow_forwardThe profitability index O will never be greater than 1. O does not take into account the discounted cash flows. O allows comparison of the relative desirability of projects that require differing initial investments. O is calculated by dividing total cash flows by the initial investment.arrow_forward
- Which of the following is CORRECT? Select one: a. If the NPV of a project is negative, the IRR for the project must also be negative. b. A project's MIRR can never exceed its IRR. c. If a project with normal cash flows has an IRR less than WACC, the project must have a positive NPV. d. If Project 1's IRR exceeds Project 2's IRR, then 1 must have a higher NPV than 2. e. If a project with normal cash flows has an IRR greater than WACC, the project must have a positive NPV. You purchase a house for $250,000. After you make your down payment of $50,000, you are financing $200,000 for 30 years at an annual percentage rate of 5.4%. How much are your monthly payments? Select one: a. Less than $1,000 b. Between $1,000 and $1,050 c. Between $1,050 and $1,100 d. Between $1,100 and $1,150 e. Greater than $1,200arrow_forwardWhat should a manager do with a project that has two internal rates of return (IRRs)? O a. Do the project if the higher of the two IRRs exceeds the cost of capital. O b. Do the project if the lower of the two IRRS exceeds the cost of capital. Oc. Choose the IRR that looks the most reasonable, and do the project if this chosen IRR is greater than the cost of capital. Od. Abandon the project, as it involves unconventional cash flows. O e. Do the project if the net present value of the project is greater than zero.arrow_forwardIn engineering economics, if PW < 0 this means to reject the project, because it is not economically justified. In other words, it produces a return that is less than MARR. Select one: True O Falsearrow_forward
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