Which of the following statements is CORRECT?
A) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects.
B) For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods.
C)Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR.
D) If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years.
E) The percentage difference between the MIRR and the IRR is equal to the project's WACC.

Question

Which of the following statements is CORRECT?
A) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects.
B) For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods.
C)Multiple IRRs can exist, but not multiple MIRRs.  This is one reason some people favor the MIRR over the regular IRR.
D) If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years.
E) The percentage difference between the MIRR and the IRR is equal to the project's WACC.

Quizplus · Accepted Answer

Multiple IRRs can exist for projects with non-normal cash flows, while multiple MIRRs cannot exist. The MIRR method is preferred by some because it avoids the multiple IRR problem and assumes reinvestment at the cost of capital, rather than the potentially unrealistic assumption of reinvestment at the project's IRR. The other statements are false: A is incorrect because different methods can lead to different accept/reject decisions for projects with non-normal cash flows; B is incorrect because all methods can potentially conflict for mutually exclusive projects with non-normal cash flows; D is incorrect because a shorter payback requirement would result in fewer projects being accepted, not more; and E is incorrect because the percentage difference between the MIRR and IRR is not necessarily equal to the project's WACC.

Which of the Following Statements Is CORRECT