Question
In: Finance
IRR and NPV may rank projects differently due to all of the following except _________. A....
IRR and NPV may rank projects differently due to all of the following except _________.
- A. tax disparity
- B. unequal lives
- C. time disparity
- D. size disparity
Solutions
Expert Solution
The correct answer is A.
Tax disparity.
Due to tax disparity between for 2 projects IRR and NPV will not rank projects differently as the cashflows of each year will be same for calculating NPV and IRR. Also the project time period will be same. In this case there will not be any disparity between NPV and IRR.
In other options IRR and NPV may rank projects differently as -
IRR and NPV may rank projects differently when the projects has unequal life. Since the IRR is as scaled measure it is biased for smaller projects which are more likely to provide higher return than larger projects. In larger projects the NPV will be more the the cash inflows will be for more no. of years. So in case of unequal life IRR and NPV may rank projects differently.
When there is time disparity for the cashflows of two different projects IRR and NPV may rank projects differently.
IRR and NPV may rank projects differently due to size disparity also. IRR will prefer the project which are smaller in size but NPV will be more of larger investment project.
Hope it helps!
jeff jeffy answered 1 year agoRelated Solutions
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present
value. IRR = internal rate of return. MIRR = modified internal rate
of return. PI = profitability index.
Criteria: Project_A Project_B
Project_C Project_D
Project_E Project_F
Project_G
NPV= $137,083 $31,290 $6,016
$7,647 ($584) $12,521
$9,214
IRR= 31.80% 48.34% 12.03%
11.30% 9.94% 26.79%
37.87%
MIRR= 18.52% 23.52%...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present
value. IRR = internal rate of return. MIRR = modified internal rate
of return. PI = profitability index.
Criteria
Project_A
Project_B
Project_C
Project_D
Project_E
Project_F
Project_G
NPV=
$14,154
$77,992
$29,515
$11,564
($8,849)
$26,514
$30,022
IRR=
28.66%
20.33%
19.72%
45.52%
9.03%
16.40%
16.05%
MIRR=
17.28%
14.35%
12.86%
22.76%
9.53%
11.97%
12.45%
PI=
1.57
1.31
1.20
2.16
0.97
1.13
1.17
The cost of capital (r) is 10%.
Which of the...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G) are 7-year projects. NPV = Net present
value. IRR = internal rate of return. MIRR = modified internal rate
of return. PI = profitability index. Criteria: Project_A Project_B
Project_C Project_D Project_E Project_F Project_G NPV= $137,083
$36,290 $6,016 $7,647 ($584) $14,521 $8,214 IRR= 31.80% 48.34%
12.03% 11.30% 9.94% 26.79% 37.87% MIRR= 18.52% 23.52% 10.62% 10.59%
9.97% 23.53% 20.76% PI= 1.69 2.25 1.040 1.038 0.999 2.28 1.92 The
discounting rate (r) is 10%. Which of the following...
All projects (A to G) are 7-year projects. NPV = Net present value. IRR = internal...
All projects (A to G)
are 7-year projects. NPV = Net present value. IRR = internal rate
of return. MIRR = modified internal rate of return. PI =
profitability index.
Project A
Project B
Project C
Project D
Project E
Project F
Project G
NPV=
$4,711
($711)
($657)
$334
$9,842
$7,360
($3,224)
IRR=
44.51%
5.47%
8.06%
12.98%
22.56%
17.19%
5.47%
MIRR=
25.23%
7.50%
8.97%
11.57%
16.26%
13.70%
7.50%
PI=
2.178
0.822
0.945
1.028
1.394
1.294
0.871
Which of the following...
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Problem 10-8 Calculate the NPV at 8% and the IRR for the following projects. Round the...
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Round the answers to two decimal places. Use a minus sign to
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NPV
$
IRR
%
An initial outlay of $25,424 followed by two zero cash years
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Single-celled micro-organisams, known for their well-organized
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You evaluate ALL of its projects by applying the Payback, Discounted Payback, NPV, and IRR rules....
You evaluate ALL of its projects by applying the Payback,
Discounted Payback, NPV, and IRR rules.
Assume the cost of capital is 10%.
Assume cash flows of:
TIME
CASH FLOWS
--------------------------------------------------------------
0
-$100
1
+$75
2
+$50
3
+$25
What is the payback?
What is the Discounted Payback?
What...
These are the cash flows for two projects. Calculate the NPV and IRR for both. Then...
These are the cash flows for two projects. Calculate the NPV and
IRR for both. Then select the best project according to the NPV
measure. Use a WACC of 10% for both projects. The investments are 7
for project 1, and 8 for project 2.
Cash flows for project 1
year
1
2
3
4
cash
4
6
2
4
Cash flows for project 2
year
1
2
3
4
cash
3
2
7
4
Calculate the NPV for project...
Compute the IRR, NPV, PI, and payback period for the following two projects. Assume the required...
Compute the IRR, NPV, PI, and payback period for the following
two projects. Assume the required return is 12%.
Cashflow for each year
Project A : Year 0= -2500 Year 1=900 Yaer 2=800 Year 3=1600 Year
4=100 Yaer 5=50 Year 6= 300
Project B Year 0 =-2500 Year 1=50 Year2= 600 Year 3=150 Year
4=900 Year 5= 500 Year 6=2500
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