FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 106

a. The internal rate of return method (IRR) is generally regarded by
academics as being the best single method for evaluating capital
budgeting projects.
b. The payback method is generally regarded by academics as being the
best single method for evaluating capital budgeting projects.
c. The discounted payback method is generally regarded by academics
as being the best single method for evaluating capital budgeting projects.
d. The net present value method (NPV) is generally regarded by
academics as being the best single method for evaluating capital
budgeting projects.
e. The modified internal rate of return method (MIRR) is generally
regarded by academics as being the best single method for evaluating
capital budgeting projects.
2. Projects A and B have identical expected lives and identical initial
cash outflows (costs). However, most of one project’s cash flows come
in the early years, while most of the other project’s cash flows occur in
the later years. The two NPV profiles are given below:
Which of the following statements is CORRECT?
a. More of Project A’s cash flows occur in the later years.
b. More of Project B’s cash flows occur in the later years.
c. We must have information on the cost of capital in order to determine
which project has the larger early cash flows.
d. The NPV profile graph is inconsistent with the statement made in the
problem.