Question

Which of the following statements is most correct?

Select one:

Large costs can occur at the end of nuclear power plants’ lives because these plants have to be closed down, and shutdown costs are high due to the difficulty of handling radioactive materials. For this reason, it is possible that a nuclear plant project could have two IRRs.

If the Australian Reserve Bank lowered interest rates, this would, other things held constant, tend to favour short-term as opposed to long-term projects.

For NPV versus IRR ranking conflicts to occur, the projects under consideration must have NPV profiles which cross one another. Crossing profiles can occur only if the two projects differ in the size of the initial investment outlay.

All of the statements above are false.

All of the statements above are true.

Answer 1

all the statement above are TRUE

statement 1- when In the case of positive cash flows followed by negative ones and then by positive ones, the IRR may have multiple values. When a project has multiple IRRs, it may be more convenient to compute the IRR of the project with the benefits reinvested.

statement 2- If the interest rates are lowered only short term projects values changes just in the case of bonds with the increase in interest bond prices fluctuate but in the long term they are always redeemded at par

statement 3 in case of contradicting results NPV profiles are given preference crossing profiles can occur with fluctating cashflows