The regular payback method is deficient in that it does not take account of cash flows beyond the payback period. The discounted payback method corrects this fault. Select one: O True False Which of the following statements is CORRECT? The IRR method appeals to some managers because it gives an estimate of the rate of return on projects rather than a dollar amount. which the NPV method provides O b. When evaluating independent projects, the NPV and IRR methods often yield conflicting results regarding a project's acceptability. Oc To find the MIRR, we discount the TV at the IRR. Od A project's NPV profile must intersect the X-axis at the project's Oe. The discounted payback method eliminates all of the problems associated with the payback method. CLEAR MY CHOICE Maxwell Feed & Seed 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 (and even negative), in which case it will be rejected. Year 0 1 2 3 4 5 Cash flows $9,500 $2,000 $2,025 $2,050 $2.075 $2.100 O A 208% Ob 231 % OC 282% d. 2.57% Qe 3.10% CLEAR MY CHOICE Since 70% of the preferred dividends received by a corporation are excluded from taxable income, the component cost of equity for a company that pays half of its earnings out as common dividends and half as preferred dividends should, theoretically, be Cost of equity-r.(0.30)(0.50)+1-T0.70(0.50) Select one: O True False Masulis Inc. is considering a project that has the following cash flow and WACC data. What is the project's discounted payback? WACC: 10.00% Year 0 Cash flows $950 Oa 179 years b 222 years Dc 244 years Od 161 years Oe 199 years 4 3 2 $525 $485 $445 $405 Serge Island Chocolate Co. expects to earn $3.50 per share during the current year, its expected dividend payout ratio is 65%, its experien constant dividend growth rate is 6.0%, and its common stock currently sells for $32.50 per share. New stock can be sold to the public at the current price, but a flotation cost of 5% would be incurred. What would be the cost of equity from new common stock? O a 12.70% b. 13.37% Oc 14.74% Od 15.48% O e 14.04% CLEAR MY CHOICE 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. Ca. If Project A has a higher IRR than Project B, then Project A must have the lower NPV Ob If Project A has a higher IRR than Project B, then Project A must also have a higher NPV Oc The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business Od. The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC e. If a project has normal cash flows and its IRR exceeds its WACC, then the project's NPV must be positive. CLEAR MY CHOICE Stern Associates is considering a project that has the following cash flow data. What is the project's payback? 0 Year Cash flows $1,100 O a 2.85 years b. 3.52 years 2 3 4 $300 $310 $320 $330 OC 3.16 years Od. 2.56 years Oe. 2.31 years CLEAR MY CHOICE 5 $340