Question Details

Tuttle Enterprises is considering a project 



1.	Which of the following statements is CORRECT?
a.	For a project to have more than one IRR, then both IRRs must be greater than the WACC.
b.	If two projects are mutually exclusive, then they are likely to have multiple IRRs. 
c.	If a project is independent, then it cannot have multiple IRRs.
d.	Multiple IRRs can only occur if the signs of the cash flows change more than once.
e.	If a project has two IRRs, then the smaller one is the one that is most relevant, and it should be accepted and relied upon.

2.	Suppose a firm relies exclusively on the payback method when making capital budgeting decisions, and it sets a 4-year payback regardless of economic conditions.  Other things held constant, which of the following statements is most likely to be true?
a.	It will accept too many short-term projects and reject too many long-term projects (as judged by the NPV).
b.	It will accept too many long-term projects and reject too many short-term projects (as judged by the NPV).
c.	The firm will accept too many projects in all economic states because a 4-year payback is too low.
d.	The firm will accept too few projects in all economic states because a 4-year payback is too high.
e.	If the 4-year payback results in accepting just the right set of projects under average economic conditions, then this payback will result in too few long-term projects when the economy is weak.



3.	Which of the following statements is CORRECT?
a.	If a project with normal cash flows has an IRR greater than the WACC, the project must also have a positive NPV.
b.	If Project A- IRR exceeds Project B-, then A must have the higher NPV.
c.	A project- MIRR can never exceed its IRR.
d.	If a project with normal cash flows has an IRR less than the WACC, the project must have a positive NPV.
e.	If the NPV is negative, the IRR must also be negative.

4.	Tuttle Enterprises is considering a project that has the following cash flow and WACC data.  What is the project's NPV?  Note that if a project's projected NPV is negative, it should be rejected.
WACC:  11.00%
Year		0	1	2	3	4	
Cash flows	-$1,000	$350	$350	$350	$350

a.	$77.49
b.	$81.56
c.	$85.86
d.	$90.15
e.	$94.66




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