IRR was lower than the cost of capital

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• Sample finance questions: internal rate of return, preferred stock, retained earnings break point and more...

  The answer provided by your instructor is incorrect. # 2. The before - tax cost of preferred stock may be lower than the before-tax cost of debt, even though preferred stock is riskier than debt.. The answer was "TRUE".

• a)Assume that the projects are of average risk. What is Dilbert's optimal capital budget? Which projects should be undertaken? (b)What is the corporate cost of capital the firm should use for budgeting purposes? (c)Now suppose it was discovered that project A has been ruled out because of an environmental ruling. . How would this change your answers to questions (a) and (b)? Be specific.

  Given the additional information from part b, we know that Project C could also be taken as its IRR is greater than the firm's cost of capital. (b)What is the corporate cost of capital the firm should use for budgeting purposes?

• The capital budgeting manager of Conscientious Construction Company (CCC) submitted the following report to the CFO

  One should select the projects by comparing IRR with the cost of capital. Project(s) having higher IRR than the cost of capital should be selected. Low Risk Project: Cost of capital is 8% - 2% = 6% and IRR = 9%.

• Calculate NPV, IRR, MIRR and Evaluate Planned Acquisition

  Should the company go ahead with the project based on your calculations? Why or why not? No. The NPV is negative. Also IRR and MIRR are lower than cost of capital.

• Mutually Exclusive Projects

  Neither, because both have IRRs less than the cost of capital. Please see the attached file.

• What are the MIRR's advantages and disadvantages vis-a-vis the regular IRR? What are the MIRR's advantages and disadvantages vis-a-vis the NPV?

  MIRR is a better rate of return measure than IRR for two reasons: (1) it correctly assumes reinvestment at the project's cost of capital rather than at its IRR rate (2) MIRR avoids the problem of multiple IRRs--there can be only one MIRR for a given

• cost of capital

  IRR is not affected by the WACC. d. If Projects c and d have the same NPV at the current WACC, Project d would have a higher NPV if the WACC of both projects was lower.

• Assuming an 10 percent cost of capital, what is the project's NPV, IRR and MIRR? Draw this project's NPV profile on a new graph. Explain what is happening with the project.

  If we assume identical cash flows for all firms, then for firms with a higher cost of capital, the project will have a LOWER NPV than for Hoskins; while for firms with a lower cost of capital, the project will have a HIGHER NPV than for Hoskins.

• weighted average cost of capital and IRR investments

  116929 weighted average cost of capital and IRR investments Your company's weighted average cost of capital is 11%. You believe the company should make a particular investment, but the IRR of this investment is only 9%.