Chapter 10 Finance 534 November 12, 2011 1.) Which of the following statements is CORRECT? D-The net present value method (NPV) is generally regarded by academics as being the best single method for evaluating capital budgeting projects. 2.) Projects A and B have identical expected lives and identical initial cash outflows (costs). However, most of one project’s cash flows come in the early years, while most of the other project’s cash flows occur in the later years. The Two NPV profiles are given below: Which of the following statements is CORRECT? A-More of Project A’s cash flows occur in the later years. 3.) Suppose a firm relies exclusively on the payback method when making capital budgeting decisions, and it sets a 4-year payback regardless of economic conditions. Other things held constant, which of the following statements is most likely to be true? E-If the 4-year payback results in accepting just the right set of projects under average economic conditions, and then this payback will result in too few long-term projects when the economy is weak. 4.) You are on the staff of Camden Inc. The CFO believes project acceptance should be based on the NPV, but Steve Camden, the president, insists that no project should be accepted unless its IRR exceeds the project’s risk-adjusted WACC. Now you must make a recommendation on a project that has a cost of $15, 000 and two cash flows: $110,000 at the end of Year 1 and $100,000 at the end of Year 2. The president and the CFO both agree that the appropriate WACC for its project is 10%. At 10%, the NPV is $2,355.37, but you find two IRRs, one at 6.33% and one at 527%, and MIRR of 11.32%. Which of the following statements best describes your optimal recommendation, I.e., the analysis and recommendation that is best for the company the company and least likely to get you in trouble with either the CFO or the