FINC 341 EXAM 3 THEORY V.2 QUESTIONS AND ANSWERS

FINC 341 EXAM 3 THEORY V.2 QUESTIONS AND
ANSWERS


If a project with normal cash flows has a positive NPV, it will definitely have an MIRR
less than the cost of capital - Answers - False

If a project with normal cash flows has an IRR that is greater than the cost of capital,
then taking on that project would decrease the value of the firm - Answers - False

If a profitable project has normal cash flows, then the MIRR has to be greater than the
IRR if the project has positive interim cash flows (cash flows between t=0 and the end of
the project) - Answers - False

If a project with normal cash flows does not have any interim cash flows, the project's
IRR will equal the projects MIRR, whether the project is profitable or not - Answers -
True

If a project has non-normal cash flows, it can occasionally have multiple MIRRs -
Answers - False

If the NPV for a project with normal cash flows is positive, then both MIRR and IRR will
be greater than the cost of capital - Answers - True

The Payback method does not consider time value of money - Answers - True

The MIRR method does not always choose the better of the two mutually exclusive
projects if the projects are different in size - Answers - True

The Discounted Payback method considers time value of money - Answers - True

The IRR of a project will increase if the firm's cost of capital increases - Answers - False

NPV, IRR, and MIRR will always agree as to whether a project with normal cash flows is
profitable or not - Answers - True

If a project has non-normal cash flows, the IRR can be less than the cost of capital with
the NPV is positive - Answers - True

A non-normal project's NPV will approach the value of the project's last cash flow at t=n
as the cost of capital approaches infinity - Answers - False

, As the cost of capital increases for a project with normal cash flows, and the IRR is less
than the cost of capital, the MIRR will increase if the project has positive interim cash
flows - Answers - True

The capital structure that maximizes the firm's earning per share is also the capital
structure that minimizes WACC - Answers - False

Lower operating leverage stems from having lower fixed costs - Answers - True

The higher a firm's tax rate, the more attractive debt capital will be to that firm - Answers
- True

The more debt a firm has in its capital structure, the higher that firm's financial leverage
will be - Answers - True

In general, as a firm begins to add debt to its capital structure, the firm's EPS will
improve, but the riskiness of EPS will increase as well - Answers - True

Cannibalized sales from another product within the same firm should not count as cash
flow for the new product of that firm since the NPV is trying to measure the amount of
new value added to the firm - Answers - True

Accelerating depreciation usually makes the sale of the equipment a gain rather than a
loss - Answers - True

Accelerating depreciation increases Net Cash Flows in the earlier years of a project -
Answers - True

The cost of doing a test market for a new product this past year should not be a cash
flow on the line when considering where to nationally market the product now - Answers
- True

Apple watches are going to cannibalize iPhone sales - Answers - False

If a normal project has positive interim cash flows and the MIRR equals the IRR, then
the cost of capital must equal IRR - Answers - True

If mutually exclusive projects have different sizes, NPV should be used instead of MIRR
- Answers - True

A project cannot possibly have multiple MIRRs - Answers - True

If the cost of capital increases, the IRR decreases - Answers - False

For a normal project, if the IRR is greater than k, then the MIRR must be greater than k
- Answers - True