Question

question 11 (5 points)
listen
which of the following statements is correct?
the mirr and npv decision criteria can never conflict.
the irr method can never be subject to the multiple irr problem, while the mirr method can be.
one reason some people prefer the mirr to the regular irr is that the mirr is based on a generally more reasonable reinvestment rate assumption.
the higher the wacc, the shorter the discounted payback period.
the mirr method assumes that cash flows are reinvested at the crossover rate.
question 12 (5 points)
listen
which of the following statements is correct? assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows

Explanation:

1. Analyze each option:

• Option 1: MIRR and NPV can conflict in certain cases (e.g., mutually exclusive projects with different scales), so this is incorrect.
• Option 2: IRR can have multiple IRR problems (for non - normal cash flows), while MIRR does not. So this statement is wrong.
• Option 3: MIRR uses a more reasonable reinvestment rate (usually the WACC or the firm's reinvestment rate) compared to IRR (which assumes reinvestment at IRR itself, which may be unrealistic). This statement is correct.
• Option 4: A higher WACC means a higher discount rate, which makes future cash flows have lower present values. This would increase the discounted payback period, not shorten it. So this is incorrect.
• Option 5: MIRR assumes reinvestment at the WACC (or another reasonable rate), not the crossover rate. So this is incorrect.

Answer:

One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.