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DISCUSSION AND ASSIGNMENT QUESTIONS 1. Which of the following statements about NPV and IRR is the least accurate? A The IRR is the discount rate that equates the present value of the cash inflows with the present the analyst should use the IRR to select the project. the IRR method give conflicting rankings. The NPV method assumes that cash flows will be reinvested at the cost of capital, while IRR rankings implicitly assume that cash flows are reinvested at the IRR. The NPV must be negative if the IRR is less than the cost of capital. value of the outflows. 2. Choose the correct answer. The post-audit is used to A improve cash flow forecasts and stimulate management to improve operations and bring results into line with forecasts B improve cash flow forecasts and eliminate potentially profitable but risky projects stimulate management to improve operations and bring results into line with forecasts and eliminate potentially profitable but risky projects D stimulate management to submit optimistic proposals and improve operations 3. Use the following data to answer questions (a) to (d). A company is considering the purchase of a copier that costs RM50,000. Assume the required rate of retum is 10% and the following is the cash flow schedule: Year 1: RM20,000 Year 2: RM30,000 Year 3: RM20,000 (a) What is the project's payback period? (b) What is the project's NPV? (c) What is the project's IRR? (d) What is the project's profitability index (PI)? 4. An analyst has gathered the following information about two projects, each with a 12% required rate of return. Use the data below to calculate the NPV for each project and then answer the questions that follow. Project A Project B Initial cost RM15,000 RM20,000 5 years 4 years Cash inflows RM5,000/year RM7,500/year NPV for Project A: RM3,024 NPV for Project B: RM2,780 (a) if the projects are independent, which project is more favourable? Should the company accept or reject both? da rahe projects are on tually exclusive, which brok project is more favourable? Should the company Life

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