Exam 3

Question 1

With mutually exclusive projects, will NPV always choose the most profitable?

Answer 1

Yes

Question 2

2 things that cause a crossover? (Causes IRR and NPV to disagree)

Answer 2

• timing of cash flows

- project size

Question 3

With independent projects, will NPV and IRR always agree?

With mutually exclusive projects, will NPV and IRR always agree?

Answer 3

Independent
-NPV and IRR always agree

Mutually Exclusive Projects

• IRR will disagree with NPV(is superior to IRR)
• when different timing of cash flows
• when different sizes

Question 4

When will MIRR and NPV always agree regarding mutually exclusive projects?

Answer 4

When projects are SAME SIZE

***still agree if timing of cash flows are different because both use WACC as reinvestment rate