Which of the following statements is correct?
A) The discounted payback is generally shorter than the regular payback.
B) Any type of project might have multiple rates of return if the IRR is sufficiently high.
C) The NPV and IRR methods can lead to conflicting accept/reject decisions only if (1)mutually exclusive projects are being evaluated and (2)if the projects' NPV profiles cross at a rate less than the firm's required rate of return.
D) The NPV and IRR methods can lead to conflicting accept/reject decisions only if (1)mutually exclusive projects are being evaluated and (2)if the projects' NPV profiles cross at a rate greater than the firm's required rate of return.
E) None of the above is a correct statement.

Question

Quizplus · Accepted Answer

Choice A is incorrect because the discounted payback is generally longer than the regular payback. Choice B is incorrect because multiple rates of return can occur only in nonconventional cash flow patterns. Choice D is incorrect because the projects' NPV profiles must cross at a rate equal to the required rate of return, not greater than it. Choice C is the correct statement. The NPV and IRR methods can lead to conflicting accept/reject decisions only if (1) mutually exclusive projects are being evaluated and (2) if the projects' NPV profiles cross at a rate less than the firm's required rate of return.

Which of the Following Statements Is Correct