NPV Analysis. The net present value (NPV), profitability index (PI), and internal rate of return (IRR) methods are often employed in project valuation. Indicate whether each of the following statements is true or false and explain why. A. A PI

Question

NPV Analysis. The net present value (NPV), profitability index (PI), and internal rate of return (IRR) methods are often employed in project valuation. Indicate whether each of the following statements is true or false and explain why.
A. A PI < 1 describes a project with IRR < k.
B. Selection solely according to the PI criterion will tend to favor smaller as opposed to larger investment projects.
C. Use of the NPV criterion is especially appropriate for larger firms with easy access to capital markets.
D. The IRR method can tend to overstate the relative attractiveness of investment projects when the opportunity cost of cash flows is below the IRR.
E. When NPV > 0, the IRR exceeds the cost of capital.

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The Answer of NPV Analysis. The net present value (NPV), profitability index (PI), and internal rate of return (IRR) methods are often employed in project valuation. Indicate whether each of the following statements is true or false and explain why.
A. A PI < 1 describes a project with IRR < k.
B. Selection solely according to the PI criterion will tend to favor smaller as opposed to larger investment projects.
C. Use of the NPV criterion is especially appropriate for larger firms with easy access to capital markets.
D. The IRR method can tend to overstate the relative attractiveness of investment projects when the opportunity cost of cash flows is below the IRR.
E. When NPV > 0, the IRR exceeds the cost of capital.