Which of the following statements is correct? Assume that the project being cons

Question

Which of the following statements is correct? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.  

If Project A has a higher IRR than Project B, then Project A must have the lower NPV

If Project A has a higher IRR than Project B, then Project A must also have a higher NPV

The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC

The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business

If a project has normal cash flows and its IRR exceeds its WACC, then the project’s NPV must be positive

Which of the following statements is correct?  

The shorter a project’s payback period, the less desirable the project is normally considered to be by this criterion

One drawback of the regular payback is that this method does not take account of cash flows beyond the payback period

If a project’s payback is positive, then the project should be accepted because it must have a positive NPV

The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem

One drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback

Which of the following statements is correct? Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.  

A

If Project A has a higher IRR than Project B, then Project A must have the lower NPV

B

If Project A has a higher IRR than Project B, then Project A must also have a higher NPV

C

The IRR calculation implicitly assumes that all cash flows are reinvested at the WACC

D

The IRR calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business

E

If a project has normal cash flows and its IRR exceeds its WACC, then the project’s NPV must be positive

Which of the following statements is correct?  

A

The shorter a project’s payback period, the less desirable the project is normally considered to be by this criterion

B

One drawback of the regular payback is that this method does not take account of cash flows beyond the payback period

C

If a project’s payback is positive, then the project should be accepted because it must have a positive NPV

D

The regular payback ignores cash flows beyond the payback period, but the discounted payback method overcomes this problem

E

One drawback of the discounted payback is that this method does not consider the time value of money, while the regular payback overcomes this drawback

Explanation / Answer

Answer: (b) If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.

NOTE

Answer(b) One drawback of the regular payback is that this method does not take account of cash flows beyond the payback period

NOTE

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