Question 1
When considering two mutually exclusive projects, the firm should always select that project whose IRR is the highest provided the projects have the same initial cost. This statement is true regardless of whether the projects can be repeated or not.
◦ true
◦ false
Question 2
A company is considering a new project. The CFO plans to calculate the project’s NPV by estimating the relevant cash flows for each year of the project’s life (the initial investment cost, the annual operating cash flows, and the terminal cash flow), then discounting those cash flows at the company’s WACC. Which factor should the CFO include in the cash flows when estimating the relevant cash flows?
◦
all interest expenses on debt used to help finance the project
◦
all sunk costs that have been incurred relating to the project
◦
sunk costs that have been incurred relating to the project, but only if those costs were incurred prior to the current year
◦
the investment in working capital required to operate the project, even if that investment will be recovered at the end of the project’s life
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