| | 1. | Because "present value" refers to the value of cash flows that occur at different points in time, a series of present values of cash flows should not be summed to determine the value of a capital budgeting project. | | 2. | Assuming that their NPVs based on the firm's cost of capital are equal, the NPV of a project whose cash flows accrue relatively rapidly will be more sensitive to changes in the discount rate than the NPV of a project whose cash flows come in later in its life. | | 3. | A basic rule in capital budgeting is that if a project's NPV exceeds its IRR, then the project should be accepted. | | 4. | Other things held constant, an increase in the cost of capital will result in a decrease in a project's IRR. | | 5. | The phenomenon called "multiple internal rates of return" arises when two or more mutually exclusive projects that have different lives are being compared. | | 6. | For a project with one initial cash outflow followed by a series of positive cash inflows, the modified IRR (MIRR) method involves compounding the cash inflows out to the end of the project's life, summing those compounded cash flows to form a terminal value (TV), and then finding the discount rate that causes the PV of the TV to equal the project's cost. | | 7. | When evaluating mutually exclusive projects, the modified IRR (MIRR) always leads to the same capital budgeting decisions as the NPV method, regardless of the relative lives or sizes of the projects being evaluated. | | 8. | The primary reason that the NPV method is conceptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRs may exist, and when that happens, we don't know which IRR is relevant. | | 9. | Small businesses make less use of DCF capital budgeting techniques than large businesses. This may reflect a lack