Assume that a firm has accurately calculated the net cash flows relating to two mutua lly exclusive investment proposals. If the net present value of both proposals exceed zero and the firm is not under the constraint of capital rationing, then the firm should . A. calculate the IRRs of these investments to be certain that the IRRs are greater than the cost of capital B. compare the profitability index of these investments to those of other possible investments C. calculate the payback periods to make certain that the initial cash outlays can be recovered within a appropriate period of time D. accept the proposal that has the largest NPV since the goal of the firm is to maximize shareholder wealth and, since the projects are mutually exclusive, we can only take one

Assume that a firm has accurately calculated the net cash flows relating to two mutua lly

exclusive investment proposals. If the net present value of both proposals exceed zero and

the firm is not under the constraint of capital rationing, then the firm should .

A. calculate the IRRs of these investments to be certain that the IRRs are greater than

the cost of capital

B. compare the profitability index of these investments to those of other possible

investments

C. calculate the payback periods to make certain that the initial cash outlays can be

recovered within a appropriate period of time

D. accept the proposal that has the largest NPV since the goal of the firm is to

maximize shareholder wealth and, since the projects are mutually exclusive, we

can only take one
by

1 Answer

Answer :

D. accept the proposal that has the largest NPV since the goal of the firm is to

maximize shareholder wealth and, since the projects are mutually exclusive, we

can only take one
by

Related questions

When operating under a single-period capital-rationing constraint, you may first want to try selecting projects by descending order of their in order to give yourself the best chance to select the mix of projects that adds most to firm value. A. profitability index (PI) B. net present value (NPV) C. internal rate of return (IRR) D. payback period (PBP)

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When operating under a single-period capital-rationing constraint, you may first want to try selecting projects by descending order of their in order to give yourself the best chance to select the mix of projects that adds most to firm value. A. profitability index (PI) B. net present value (NPV) C. internal rate of return (IRR) D. payback period (PBP)

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Which of the following statements is correct regarding the internal rate of return (IRR) method? A. Each project has a unique internal rate of return. B. As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sign changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence. C. The internal rate of return does not consider the time value of money. D. The internal rate of return is rarely used by firms today because of the ease at which net present value is calculated

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Which of the following is not a potential for a ranking problem between two mutua lly exclusive projects? A. The projects have unequal lives that differ by several years. B. The costs of the two projects differ by nearly 30%. C. The two projects have cash flow patterns that differ dramatically. D. One of the mutually exclusive projects involves replacement while the other involves expansion

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Which of the following statements is correct regarding the internal rate of return (IRR) method? A. Each project has a unique internal rate of return B. As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sigD. The internal rate of return is rarely used by firms today because of the ease at which net present value is calculatedn changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence. C. The internal rate of return does not consider the time value of money.

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A profitability index (PI) of .92 for a project means that . A. The project's costs (cash outlay) are (is) less than the present value of the project's benefits B. The project's NPV is greater than zero C. The project's NPV is greater than 1 D. The project returns 92 cents in present value for each current rupee invested (cost)

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