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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 following 10 statements are true (there are several, select all that are correct). Consider each statement on its own separate from the others listed:

Question 1 options:

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the IRR rule projects B, C, and G should be undertaken

If all projects are independent, under the PI rule, projects A, B, C, D, F, and G should be taken

If all projects are independent, under the NPV rule, only project E should be rejected

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the NPV rule projects B, C, and G should be undertaken

If all projects are independent, under the IRR rule only projects A, B, C, D, F and G should be taken

If all projects are mutually exclusive, under the NPV rule only project B should be taken

If all projects are independent, under the MIRR rule only project E should be rejected

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the PI rule projects B, C, and G should be undertaken

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the MIRR rule projects B, C, and F should be undertaken

If all projects are mutually exclusive, under the NPV rule projects A, B, C, D, F and G should be taken

All projects are shown above - Project G is the last project....

Solutions

Expert Solution

Question 1 options:

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the IRR rule projects B, C, and G should be undertaken (False, because higher IRR is chosen over lower IRR. So project A,D and F should be undertaken)

If all projects are independent, under the PI rule, projects A, B, C, D, F, and G should be taken(True)

If all projects are independent, under the NPV rule, only project E should be rejected(True) Positive NPV is undertaken

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the NPV rule projects B, C, and G should be undertaken (True). High NPV is undertaken

If all projects are independent, under the IRR rule only projects A, B, C, D, F and G should be taken (True) IRR is greater than Cost of capital.

If all projects are mutually exclusive, under the NPV rule only project B should be taken (True) because it has highest NPV

If all projects are independent, under the MIRR rule only project E should be rejected (True)

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the PI rule projects B, C, and G should be undertaken (False higher PI is preferable so Project A,D and G are undertaken and PI has to be more than 1 to undertake the project).

If projects A & B are mutually exclusive, projects C and D are also mutually exclusive and projects F and G are also mutually exclusive (all others are independent), under the MIRR rule projects B, C, and F should be undertaken (False) higher MIRR are undertaken

If all projects are mutually exclusive, under the NPV rule projects A, B, C, D, F and G should be taken (False, if projects are mutually exclusive then Project B is undertaken as it has highest NPV)

jeff jeffy answered 1 year ago
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