Which of the Following Statements Is CORRECT

question 77

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 WACC to find the PV.
• B) The NPV and IRR methods both assume that cash flows can be reinvested at the WACC. 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 WACC will change both the NPV and the IRR.

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Definitions:

Flotation Costs

The costs associated with the issuance of new securities.

Low-dividend Stocks

Stocks of companies that pay lower dividends relative to their share price, often reinvesting earnings into the business for growth.

High-dividend Stocks

High-dividend stocks are shares issued by companies that return a relatively high percentage of their profits to shareholders in the form of dividends.

Personal Income Tax

A tax levied by governments on individuals or households based on their income, with the rate often varying based on income levels.