Which one of the following statements is correct? a. If the IRR exceeds the requ

Question

Which one of the following statements is correct?

a. If the IRR exceeds the required return, the profitability index will be less than 1.0.

b. The profitability index will be greater than 1.0 when the net present value is negative.

c. When the internal rate of return is greater than the required return, the net present value is positive.

d. Projects with conventional cash flows have multiple internal rates of return.

e. If two projects are mutually exclusive, you should select the project with the shortest payback period.

Explanation / Answer

Solution-

When the internal rate of return is greater than the required return, the net present value is positive

Explanation-

If the value of r such that NPV(I, r) = 0 than the IRR is more than the required return or opportunity cost of capital so NPV also positive.

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