Which of the Following Statements Is CORRECT

question 35

Multiple Choice

Which of the following statements is CORRECT?

• A) To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the cost of capital to find the PV.
• B) The NPV and IRR methods both assume that cash flows can be reinvested at the cost of capital.However, the MIRR method assumes reinvestment at the MIRR itself.
• C) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years.
• D) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.
• E) For a project with normal cash flows, any change in the cost of capital will change both the NPV and the IRR.

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Definitions:

Making Payments

This process involves the transfer of funds from one party to another to settle a financial obligation or purchase.

Cash Equivalents

Investments with a short duration, easily turned into cash, and having an original maturity of no longer than three months, which are both highly liquid and quickly convertible into precise cash sums.

Short-Term Receivables

Current assets representing amounts due to be received by a company within a short period, typically within a year, from customers or clients.

Commercial Paper

Commercial paper is an unsecured, short-term debt instrument issued by corporations, typically used for the financing of accounts receivable, inventories, and meeting short-term liabilities.