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FIN 470: Exam I Review Study Guide Solutions

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FIN 470: Exam I Review Study Guide Solutions Net Present Value (NPV) - Ans:-Represents the amount by which firm value changes with acceptance of the project Problems with NPV - Ans:-Managers and investors are accustomed to, and have a preference for, measuring the expected return of an investm...

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  • October 23, 2024
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FIN 470: Exam I Review Study Guide
Solutions


Net Present Value (NPV) - Ans:✔✔-Represents the amount by which firm value changes with acceptance

of the project


Problems with NPV - Ans:✔✔-Managers and investors are accustomed to, and have a preference for,

measuring the expected return of an investment in percentage terms


Internal Rate of Return (IRR) - Ans:✔✔-The rate of return that equates the present value of the project's

net cash flows with the project's net initial investment


Problems with IRR - Ans:✔✔-- Multiple IRRs are generally realized when the project has more than one

sign change in its periodic cash flows.


- WACC is a more appropriate for the reinvestment rate


- IRR and NPV may yield a different project ranking when evaluating alternative mutually exclusive

projects.


Modified Internal Rate of Return (MIRR) - Ans:✔✔-The rate of return that equates the present value of

the project's cash flows with the net investment

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