When a project has multiple internal rates of return:
A)the analyst should choose the highest rate to compare with the firm's cost of capital.
B)the analyst should choose the lowest rate to compare with the firm's cost of capital.
C)the analyst should choose the rate that seems most "reasonable", given the project's cash flows, to compare with the firm's cost of capital.
D)the analyst should compute the project's net present value and accept the project if its NPV is greater than $0

Question

Quizplus · Accepted Answer

When a project has multiple internal rates of return, it indicates non-conventional cash flows, making IRR unreliable. The net present value (NPV) method is more appropriate as it provides a clear decision rule: accept the project if NPV is greater than $0.

When a Project Has Multiple Internal Rates of Return