NPV Analysis

question 17

Short Answer

NPV Analysis. The net present value (NPV), profitability index (PI), and internal rate of return (IRR) methods are often employed in project valuation. Indicate whether each of the following statements is true or false and explain why.
A. A PI < 1 describes a project with IRR < k.
B. Selection solely according to the PI criterion will tend to favor smaller as opposed to larger investment projects.
C. Use of the NPV criterion is especially appropriate for larger firms with easy access to capital markets.
D. The IRR method can tend to overstate the relative attractiveness of investment projects when the opportunity cost of cash flows is below the IRR.
E. When NPV > 0, the IRR exceeds the cost of capital.

---

Definitions:

Form 8949

A tax form used by the IRS to report sales and other dispositions of capital assets.

Outstanding Receivables

are amounts owed to a business by its customers for goods or services delivered but not yet paid for.

FMV

Fair Market Value; the price that property would sell for on the open market between a willing buyer and a willing seller.

Basis

In tax terms, it refers to the amount of a taxpayer's investment in property for tax purposes, used to calculate gain or loss on the sale or disposition of the property.