Warr Company is considering a project that has the following cash flow data. What is the project's IRR? Note that a proj
Posted: Wed May 18, 2022 9:25 pm
Warr Company is considering a project that has the following
cash flow data. What is the project's IRR? Note that a project's
projected IRR can be less than the WACC or negative, in both cases
it will be rejected.
Year 0 1
2 3
4
Cash flows -$1565
$400 $400
$400 $400
a. 0.85%
b. 0.78%
c. 0.88%
d. 0.76%
e. 0.91%
Which of the following is NOT directly reflected in the
cash budget of a firm that is in the zero tax bracket?
a. Payment lags.
b. Payment for plant
construction.
c. Cumulative
cash.
d. Repurchases of
common stock.
e. Writing off bad
debts.
Which of the following statements is CORRECT? Assume that the
project being considered has normal cash flows, with one outflow
followed by a series of inflows.
a. A project’s NPV is
generally found by compounding the cash inflows at the WACC to find
the terminal value (TV), then discounting the TV at the IRR to find
its PV.
b. The higher the WACC
used to calculate the NPV, the lower the calculated NPV will
be.
c. If a project’s NPV
is greater than zero, then its IRR must be less than the
WACC.
d. If a project’s NPV
is greater than zero, then its IRR must be less than zero.
e. The NPVs of
relatively risky projects should be found using relatively low
WACCs.
Which of the following statements is CORRECT? Assume that the
project being considered has normal cash flows, with one outflow
followed by a series of inflows.
a. If Project A has a
higher IRR than Project B, then Project A must have the lower
NPV.
b. If Project A has a
higher IRR than Project B, then Project A must also have a higher
NPV.
c. The IRR calculation
implicitly assumes that all cash flows are reinvested at the
WACC.
d. The IRR calculation
implicitly assumes that cash flows are withdrawn from the business
rather than being reinvested in the business.
e. If a project has
normal cash flows and its IRR exceeds its WACC, then the project’s
NPV must be positive.
Firms U and L each have the same amount of assets,
investor-supplied capital, and both have a return on investors’
capital (ROIC) of 12%. Firm U is unleveraged, i.e., it is 100%
equity financed, while Firm L is financed with 50% debt and 50%
equity. Firm L's debt has an after-tax cost of 8%. Both firms have
positive net income and a 35% tax rate. Which of the following
statements is CORRECT?
a. The two companies
have the same times interest earned (TIE) ratio.
b. Firm L has a lower
ROA than Firm U.
c. Firm L has a lower
ROE than Firm U.
d. Firm L has the
higher times interest earned (TIE) ratio.
e. Firm L has a higher
EBIT than Firm U.
cash flow data. What is the project's IRR? Note that a project's
projected IRR can be less than the WACC or negative, in both cases
it will be rejected.
Year 0 1
2 3
4
Cash flows -$1565
$400 $400
$400 $400
a. 0.85%
b. 0.78%
c. 0.88%
d. 0.76%
e. 0.91%
Which of the following is NOT directly reflected in the
cash budget of a firm that is in the zero tax bracket?
a. Payment lags.
b. Payment for plant
construction.
c. Cumulative
cash.
d. Repurchases of
common stock.
e. Writing off bad
debts.
Which of the following statements is CORRECT? Assume that the
project being considered has normal cash flows, with one outflow
followed by a series of inflows.
a. A project’s NPV is
generally found by compounding the cash inflows at the WACC to find
the terminal value (TV), then discounting the TV at the IRR to find
its PV.
b. The higher the WACC
used to calculate the NPV, the lower the calculated NPV will
be.
c. If a project’s NPV
is greater than zero, then its IRR must be less than the
WACC.
d. If a project’s NPV
is greater than zero, then its IRR must be less than zero.
e. The NPVs of
relatively risky projects should be found using relatively low
WACCs.
Which of the following statements is CORRECT? Assume that the
project being considered has normal cash flows, with one outflow
followed by a series of inflows.
a. If Project A has a
higher IRR than Project B, then Project A must have the lower
NPV.
b. If Project A has a
higher IRR than Project B, then Project A must also have a higher
NPV.
c. The IRR calculation
implicitly assumes that all cash flows are reinvested at the
WACC.
d. The IRR calculation
implicitly assumes that cash flows are withdrawn from the business
rather than being reinvested in the business.
e. If a project has
normal cash flows and its IRR exceeds its WACC, then the project’s
NPV must be positive.
Firms U and L each have the same amount of assets,
investor-supplied capital, and both have a return on investors’
capital (ROIC) of 12%. Firm U is unleveraged, i.e., it is 100%
equity financed, while Firm L is financed with 50% debt and 50%
equity. Firm L's debt has an after-tax cost of 8%. Both firms have
positive net income and a 35% tax rate. Which of the following
statements is CORRECT?
a. The two companies
have the same times interest earned (TIE) ratio.
b. Firm L has a lower
ROA than Firm U.
c. Firm L has a lower
ROE than Firm U.
d. Firm L has the
higher times interest earned (TIE) ratio.
e. Firm L has a higher
EBIT than Firm U.