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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