Which of the following statements is correct?
A) Because discounted payback takes account of the required rate of return,a project's discounted payback is normally shorter than its regular payback.
B) The NPV and IRR methods use the same basic equation,but in the NPV method the discount rate is specified and the equation is solved for NPV,while in the IRR method the NPV is set equal to zero and the discount rate is found.
C) If the required rate of return is less than the crossover rate for two mutually exclusive projects' NPV profiles,a NPV/IRR conflict will not occur.
D) If you are choosing between two projects which have the same life,and if their NPV profiles cross,then the smaller project will probably be the one with the steeper NPV profile.
E) If the required rate of return is relatively high,this will favor larger,longer-term projects over smaller,shorter-term alternatives because it is good to earn high rates on larger amounts over longer periods.

Question

Quizplus · Accepted Answer

Statement A is false because discounted payback may be longer than regular payback if cash flows are uneven. Statement C is false because a NPV/IRR conflict can still occur even if the required rate of return is less than the crossover rate. Statement D is false as there is no general rule about project sizes and NPV profiles crossing. Statement E is also false because a high required rate of return may favor shorter-term projects that can generate cash flows sooner. Statement B is correct as it accurately describes the differences between the NPV and IRR methods.

Which of the Following Statements Is Correct