Question 4 - Multiple Choice You are a financial manager and are presented with five different projects to invest in. Table 3 provides additional details on the different projects. Table 3 - Project FCF forecasts (in $1,000) Year I II III IV V 0 -$2,000 -$2,600 $5,000 $2,500 $7,000 1 -$500 $650 $0 $500 -$1,500 2 -$200 $650 $0 $1,000 $1,500 3 $1,500 $650 $0 $2,000 $2,000 4 $2,000 $650 $0 $2,500 5 $650 $0 $3,000 5 $650 $8,500 $3,500 r 10% 8% 8% 10% 12% IRR 8.3% 13.0% 9.2% 15.1% 9.8% Part A If the projects are mutually exclusive which one would you invest in? Select one. i. Project | ii. Project M iii. Project lll iv. Project IV v. Project V vL None Part B Which of the following statements is true? Select one. i. The IRR of Project I\" is equal to the MIRR. ii. The MIRR of Project IV is likely higher than 10% but lower than 15.1%. iii. The MIRR of Project | is likely lower than 10%. iv. (i) is false but (ii) and (iii) are true. v. (i) and (ii) are true, but (iii) is false. vi. (i), (ii), and (iii) are true. Very few calculations are necessary to answer this question. You need to understand the problem of the re-investment assumption when dealing with the IRR. If we are assuming a discount rate of r then we are assuming that cash flows can be re-invested at the same discount rate. Is true because there are no interim cash flows that need re-investing. As such the IRR=MIRR. No calculations are needed. ii) Is true because the project is NPV positive (IRR>r). Therefore you know that the MIRR>r. Additionally, in this case MIRR