Answer the following statements true (T) or false (F)
1. For high-internal rate of return investments, it is perfectly acceptable to assume that reinvestment will occur at an equally high, if not higher, rate.
2. The modified internal rate of return method assumes that inflows are reinvested at 80% of the internal rate of return.
3. Under capital rationing, a firm will maximize profitability.
4. The net present value profile allows a firm to examine the project's net present value over time without any adjustments.
5. The net present values' weakness is that it does not provide a decision for mutually exclusive investments.
1. FALSE
-Under the IRR assumption, it may be unrealistic to assume reinvestment at that high resulting rate can occur.
2. FALSE
3. FALSE
-Capital rationing is a management-imposed constraint, rather than a result of marginal analysis.
4. FALSE
-The method provides a comparison at the investment origin point between current cash flows and future discounted cash flows.
5. FALSE
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