O The NPV and IRR methods, when used to evaluate two independent and equally risky projects, will lead to different accept/reject decisions and thus capital budgets if the projects' IRRs are greater than their cost of capital. O No conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross. O The primary reason that the NPV method is conceptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRS may exist, and when that happens, we don't know which IRR is relevant. The NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, will lead to different accept/reject decisions and thus capital budgets if the cost of capital at which the projects' NPV profiles cross is less than the projects' cost of capital. OTwo of the statements are correct.
O The NPV and IRR methods, when used to evaluate two independent and equally risky projects, will lead to different accept/reject decisions and thus capital budgets if the projects' IRRs are greater than their cost of capital. O No conflict will exist between the NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, if the projects' cost of capital exceeds the rate at which the projects' NPV profiles cross. O The primary reason that the NPV method is conceptually superior to the IRR method for evaluating mutually exclusive investments is that multiple IRRS may exist, and when that happens, we don't know which IRR is relevant. The NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, will lead to different accept/reject decisions and thus capital budgets if the cost of capital at which the projects' NPV profiles cross is less than the projects' cost of capital. OTwo of the statements are correct.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
WHICH OF THE FOLLOWING STATEMENT IS CORRECT?
Transcribed Image Text:O The NPV and IRR methods, when used to evaluate two independent and
equally risky projects, will lead to different accept/reject decisions and
thus capital budgets if the projects' IRRs are greater than their cost of
capital.
O No conflict will exist between the NPV and IRR methods, when used to
evaluate two equally risky but mutually exclusive projects, if the projects'
cost of capital exceeds the rate at which the projects' NPV profiles cross.
O The primary reason that the NPV method is conceptually superior to the
IRR method for evaluating mutually exclusive investments is that multiple
IRRS may exist, and when that happens, we don't know which IRR is
relevant.
The NPV and IRR methods, when used to evaluate two equally risky but
mutually exclusive projects, will lead to different accept/reject decisions
and thus capital budgets if the cost of capital at which the projects' NPV
profiles cross is less than the projects' cost of capital.
OTwo of the statements are correct.
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