QUESTION 7Which of the following statements is correct?a. When there are two mutually exclusive projects, the project with the highest NPV should be chosen.D. The payback period criterion properly considers the time value of money.OC. The IRR method correctly ranks mutually exclusive projects.d. Since investors prefer more return and less risk, one will never hold a dominated asset in the risk-return sense. In other words, if asset A has a higherexpected return and lower standard-deviation than asset B, then investors would only hold asset A in their optimal portfolio.e. When an investment project is evaluated today, the spending that occurred in the last year has to be included in the NPV analysis.

All of the following are incorrect: The payback period criterion properly considers the time value…

Answered: Which of the following statements is…

Business

Finance

Which of the following statements is correct? a. When there are two mutually exclusive projects, th

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

See similar textbooks

Related questions

Q: Can one special purpose entity be used for more than one project

A: Special Purpose Entity: A legal entity that is formed with a well-defined, specific purpose that has…

Q: Does the Analysis Period Equal Project Lives?

A: Yes, the analysis period equals the project lives.

Q: In words, what is put-call parity?

A: Put-Call Parity It is a fundamental that shows the relation of option price i.e the European call…

Q: What kind of project is selected while comparing the mutually exclusive revenue projects?

A: Answer: Introduction: Mutual exclusive projects are such projects which will accept only one of the…

Q: Describe the process of Evaluating Mutually Exclusive Projects?

A: Mutually exclusive projects are the capital investment proposal where best proposal option is…

Q: Define Gordon model? Differentiate between independent and mutually exclusive projects with examples

A: Gordon model is a dividend valuation model.

Q: Replacement projects are a subcategory of the mutually exclusive projects. True or false?

A: Replacement project: A replacement project is an undertaking in which the corporation rejects a…

Q: Differentiate between Independent and Mutually Exclusive projects

A: In capital budgeting, mutually-exclusive projects refer to a set of projects where only one project…

Q: Describe the incremental Analysis for Comparing Mutually Exclusive Alternatives?

A: The question is based on the concept of Incremental cash flow analysis of mutually exclusive…

Q: If projecst are independent, you can choose ________ project(s). If projects are mutually exclusive,…

A: Correct answer is (a) More than 1 ; only 1.

Q: and classify the project into Replacement decision, lecision, Diversification decision, Safety…

A: Expansion project is the project which is used to expand the business of the company. It includes…

Q: Harmonization and convergence are closely aligned. – Explain.

A: Convergence is described as a process which focuses to eliminate the differences and developing a…

Q: In a table : Explain the difference between independent and mutually exclusive projects?

A: Independent and mutually exclusive projects are the part of Cash flows or cash flow statement.…

Q: How will you choose between two mutually exclusive projects which do differs in terms of their…

A: An investment appraisal is a capital budgeting technique that helps to analyze a proposed project's…

Q: Differentiate between divisible and indivisible projects

A: Capital rationing is the process of limiting the projects that the company. It will reduces the…

Q: Which of the following value is concerned with the way we approach the end states?

A: Option a

Q: Evaluating the mutually exclusive projects using the IRR and NPV approaches can be problematic'.…

A: It is a method under capital budgeting which includes the computation of the net present value of…

Q: Define each of the following terms:b. Independent projects; mutually exclusive projects

A: The Project evaluation and selection are one of the key components in Capital Budgetting decisions…

Q: Differentiate between independent and mutually exclusive projects.

A: Mutually exclusive projects: If two projects are termed to be mutually exclusive, when the…

Q: What is crossover rate and why is it important when evaluating two projects?

A: The process through which a company evaluates possible big projects or investments is called capital…

Q: What is independent projects?

A: Introduction: Capital budgeting is an investment criterion or decision making mechanism for…

Q: Project A and Project B are mutually exclusive projects, which one of the following is incorrect…

A: Mutually exclusive projects are those projects which compete each other for capital and resources.

Q: Is it possible for conflicts to exist between the NPV and the IRR when independent projects are…

A: Meaning of NPV= Net present Value NPV is used to analyse the decisions of investments in any project…

Q: What is mutually exclusive projects?

A: Mutually exclusive projects are capital projects which engage directly with each other. It differs…

Q: Provide an example of a “good” externality—that is, one thatincreases a project’s true NPV over what…

A: The net present value (NPV) method is a method to ascertain the profitability of an investment in a…

Q: Explain the difference between independent and mutually exclusive projects?with examples..

A: Independent Project Independent project means the execution of the project with its cash flow will…

Q: What is the difference between “independent” and “mutuallyexclusive” projects?

A: Projects are categorized in capital budgeting as independent or as mutually exclusive. If a…

Q: Describe the procedure used for Incremental Analysis for Comparing Mutually Exclusive Alternatives?

A: Mutually exclusive alternatives are those alternatives in which only one alternative can be selected…

Q: What is the Terminal project balance?

A: Project balance is the amount of money that is remaining in the project. Suppose a project is going…

Q: Consider the following cash flows for two mutually exclusive capital investment projects. The…

A: Net Present Value (NPV) is the excess of present value of cash inflows over present value of cash…

Q: Describe the process of Evaluating a Single Project?

A: A single project can be evaluated using quantitative, qualitative or a combination of both. Project…

Q: How can we generalize the decision rule for comparing mutually exclusive projects?

A: A company can only select only one project from various projects because it requires huge capital…

Q: What two conditions can lead to conflicts between the NPV and the IRR when evaluatingmutually…

A: NPV : NPV or net present value is defined as the difference between present value of cash inflows…

Q: Define the term joint product.

A: Product costs: The costs incurred to acquire the merchandise, ship the stock, prepare the…

Q: When you have more than two mutually exclusive alternatives, how can they be compared in pairs?

A: Mutually exclusive alternatives are those in which we can select only one out of various…

Q: Explain the difference between independent and mutually exclusive projects?

A: Under capital budgeting, there are 2 types of projects selection basis: 1. When projects are…

Q: Compare Two Mutually Exclusive Revenue Projects?

A: Answer: Mutual exclusive revenue projects refer to the group of projects where, if one project is…

Q: What is the project's NPV

A: The NPV is one of the technique in the capital budgeting which is used in the project evaluation.…

Q: Describe the evaluation techniques to consider multiple projects that are mutually exclusive?

A: Following are the evaluation techniques to consider multiple projects that are mutually exclusive:…

Q: Give two examples or scenario of constructive/implied acceptance.

A: Constructive/Implied acceptance is the one that is not directly stated but is demonstrated by the…

Q: What two characteristics can lead to conflicts between the NPV andthe IRR when evaluating mutually…

A: 1.When two projects are of different size and investment, NPV and IRR can throw up different…

Q: If these projects were independent, which project(s) would be accepted? Why? If these projects were…

A: We use different capital budgeting tools to determine the financial feasibility of projects that are…

Q: mutually exclusive alternatives, determine the value "X" for the two alternatives to be equally…

A: Mutually Exclusive projects are projects that can not occur together. That is, happening of one…

Q: Which of the following is the correct calculation of project Delta's IRR?

A: Internal Rate of Return (IRR): It is the rate of return at which a project's net present value…

Q: Identify the following terms: PV, E

A: PV (Planned value) : This can be understood as the first step in managing gained value. The accepted…

Q: Need complete solution of part (a),(b) and (d)

A: Given information : Basic cost = $180,000 Additional costing = $20,000 Cost basis for depreciation =…

Q: Describe one advantage and one disadvantage of the NPV methodology of evaluating proposed projects

A: The net present value of the NPV technique is that it considers the essential thought that a future…

Question

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

This is a popular solution!

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step 3

VIEW

Trending now

This is a popular solution!

Step by step

Solved in 3 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

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

Which of the following statements is correct? a. Since investors prefer more return and less risk, one will never hold a dominated asset in the risk-return sense. In other words, if asset A has a higher expected return and lower standard-deviation than asset B, then investors would only hold asset A in their optimal portfolio. b. The IRR method correctly ranks mutually exclusive projects. c. When an investment project is evaluated today, the spending that occurred in the last year has to be included in the NPV analysis. d. The payback period criterion properly considers the time value of money. e. When there are two mutually exclusive projects, the project with the highest NPV should be chosen.
16. Which of the following statements regarding the net present value rule and the rate of return rule is false? A. Accept a project if NPV > cost of investment.B. Accept a project if NPV is positive.C. Accept a project if return on investment exceeds the rate of return on an equivalent-risk investment in the financial market.D. Reject a project if NPV is negative.
18. If one were to plot the expected returns of assets (y axis) against the systematic risk (x-axis) and construct a frontier of investments, then the indifference curves of a risk-neutral investor would: Select one or more: a. Would be straight horizontal lines b. Would be undefined and impossible to plot on such a diagram c. Would increase in utility as you go up along the y-axis d. Would be straight vertical lines e. Coincide over top the efficient frontier boundary at all points f. Would increase in utility as you go left along the x-axis
To obtain the maximum reduction in risk, an investor should combine assets that * A.are negatively correlated. B.have a correlation coefficient of negative one. C.are uncorrelated. Option 5 D.have a correlation coefficient of positive one.
At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only II and IV only III and IV only ооо O
If the internal rate of return (IRR) of a well-behaved investment alternative is equal to MARR, which of the following statements about the other measures of worth for this alternative must be true? i. PW = 0 ii. AW = 0. Solve, a. I onlyb. II only c. Neither I nor II d. Both I and II.
Consider the following two statements concerning risk analysis: 1. Sensitivity analysis provides clear decision rules concerning acceptance or rejection of an investment project. 2. The risk-adjusted discount rate adds a risk premium to the expected rate of inflation to deriv a discount rate for investment projects. Which one of the following combinations (true/false) relating to the above statements is correct? O a. Statement 1 True Statement 2 False O b. none of the answer provided are correct Statement 1 True Statement 2 True Statement 2 False c. d. Statement 1 False O e. Statement 1 False Statement 2 True
11. Which one of the following statements is most CORRECT? a. Real options change the risk, but not the size, of projects' expected NPVs. b. Very few projects have real options. They are theoretically interesting but of little practical importance. c. Real options are more valuable when there is very little uncertainty about the true values of future sales and costs. d. Real options change the size, but not the risk, of projects' expected NPVs. e. Real options can reduce the cost of capital that should be used to discount a project's expected cash flows.
Think about whether a risk-free asset should earn a risk-premium beyond the risk-free rate. Thinking about that should give you an idea of the beta for a risk-free asset. Or, look again at the CAPM equation: E(Ri)=Rf+βi[E(RM)−Rf] Given this equation, what beta sets the E(R) of the risk free asset equal to the risk-free rate? A) zero B) 0.5 C) 1.0 D) its random
Consider the following two statements concerning risk analysis: 1. Sensitivity analysis provides clear decision rules concerning acceptance or rejection of an investment project. 2. The risk-adjusted discount rate adds a risk premium to the expected rate of inflation to derive a discount rate for investment projects. Which one of the following combinations (true/false) relating to the above statements is correct? Select one: a. Statement 1 is False & Statement 2 True b. Statement 1 is False & Statement 2 False c. Statement 1 is True & Statement 2 is False d. Statement 1 is True & Statement 2 is True e. None of these answers are correct
What are the reinvestment rate assumptions for the NPV and the IRR? A.IRR: Risk Free Rate NPV: WACC B.IRR: The IRR itself NPV: WACC C.The cash flows generated by the project are not assumed to be reinvested. So they will not earn a rate of return. D.IRR: Risk free rate NPV: Risk free Rate E. IRR:WACC NPV: WACC
Beta and CAPM Is it possible that a risky asset could have a beta of zero? Explain. Based on the CAPM, what is the expected return on such an asset? Is it possible that a risky asset could have a negative beta? What does the CAPM predict about the expected return on such an asset? Can you give an explanation for your answer?

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS