For example, an energy company may use IRR in deciding whether to open a new power plant or to renovate and expand a previously existing one. It fails to properly rank capital projects.
If Zybeck issues common stock this year, what will be the projected EPS next year? Although IRR is an appealing metric to many, it should always be used in conjunction with NPV for a clearer picture of the value represented by a potential project a firm may undertake.
The firm should accept independent projects if A. The payback period is 2. This conversation has been flagged as incorrect. It could produce more than one rate of return. Accounts payable is considered to be a spontaneous source of financing matahari Points User: The cost associated with each additional dollar of financing for investment projects is A.
Conversely, a longer project may have a low IRR, earning returns slowly and steadily, but may add a large amount of value to the company over time. The required return on each component is: The firm is considering two alternatives to finance a new product: Accounts payable Original conversation User: This can rarely be the case.
While the actual rate of return that a given project ends up generating will often differ from its estimated IRR, a project with a substantially higher IRR value than other available options would still provide a much better chance of strong growth.
Which of the following is considered to be a deficiency of the IRR? For the NPV criteria, a project is acceptable if the NPV is greater than zero, while for the profitability index, a project is acceptable if the profitability index is greater than one.
Any project with an IRR that exceeds the RRR will likely be deemed a profitable one, although companies will not necessarily pursue a project on this basis alone.
Which of the following is considered to be a spontaneous source of financing? MIRR adjusts the IRR to correct these issues, incorporating cost of capital as the rate at which cash flows are reinvested, and existing as a single value.
This, along with the fact that long projects with fluctuating cash flows may have multiple distinct IRR values, has prompted the use of another metric called modified internal rate of return MIRR.
It is not useful in accounting for risk in capital budgeting Weegy: Management is wondering if its current capital structure is too conservative. Depending on the initial investment costs, a project may have a low IRR but a high NPV, meaning that while the pace at which the company sees returns on that project may be slow, the project may also be adding a great deal of overall value to the company.
For example, a project of a short duration may have a high IRR, making it appear to be an excellent investment, but may also have a low NPV. In planning investment projects, firms will often establish a required rate of return RRR to determine the minimum acceptable return percentage that the investment in question must earn in order to be worthwhile.
Rather, when positive cash flows are reinvested, it will be at a rate that more resembles the cost of capital. Financial Expert answered cadbury Points A similar issue arises when using IRR to compare projects of different lengths.
Miscalculating using IRR in this way may lead to the belief that a project is more profitable than it actually is. The most expensive source of capital is A.
The most expensive source of capital is C. It fails to utilize the time value of money. While both projects are likely to add value to the company, it is likely that one will be the more logical decision as prescribed by IRR.
Rather, they will likely pursue projects with the highest difference between IRR and RRR, as these likely will be the most profitable.A It Fails To Utilize The Time Value Of Money B Could Produce More Than One Rate Return C Is Not Useful In Accounting For Risk Capital Budgeting D Properly Rank.
Weegy: the following is considered to be a deficiency of the IRR- B. It could produce more than one rate of return. It could produce more than. Jun 12, · 25) Which of the following is considered to be a spontaneous source of financing?
A. Accounts payable. Accounts - Answered by a verified Business Tutor5/5.
32) Which of the following is considered to be a deficiency of the IRR? 33) Most firms use the payback period as a secondary capital-budgeting technique, which, in a sense, allows them to control for risk%(4). chpt 9 finance. STUDY. PLAY. internal rate of return. discounted cash flow valuation. The length of time a firm must wait to recoup the money it has invested in a project is called the: Which of the following are considered weaknesses in the average accounting return method of.
Chapter 11 Investment Decision Criteria. STUDY. the internal rate of return. D) the modified internal rate of return.
A. 31) Whenever the IRR on a project equals that project's required rate of return Which of the following is considered to be a deficiency of the IRR? A) It fails to properly rank capital projects.Download