Question

7) Which of the following statements is FALSE? A) The IRR investment rule will identify the correct decision in many, but not all, situations. B) By setting the NPV equal to zero and solving for r, we find the IRR. C) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate. D) The simplest investment rule is the NPV investment rule. 8) Which of the following statements is FALSE? A) The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital. B) The IRR investment rule states that you should take any investment opportunity where the IRR exceeds the opportunity cost of capital C) Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions. D) There are situations in which multiple IRRs exist. 9) Which of the following statements is FALSE? A) It is possible that an IRR does not exist for an investment opportunity. B) If the payback period is less than a pre-specified length of time you accept the project. C) The internal rate of return (IRR) investment rule is based upon the notion that if the return on other alternatives is greater than the return on the investment opportunity you should undertake the investment opportunity. D) It is possible that there is no discount rate that will set the NPV equal to zero. 10) Which of the following statements is FALSE? A) In general, the IRR rule works for a stand-alone project if all of the project's positive cash flows precede its negative cash flows. B) There is no easy fix for the IRR rule wnen there are multiple IRRs. C) The payback rule is primarily used because of its simplicity D) No investment rule that ignores the set of alternative investment alternatives can be optimal ith

Answer 1

Q - 7

The correct answer is option C) If you are unsure of your cost of capital estimate, it is important to determine how sensitive your analysis is to errors in this estimate

In such a case, cost of capital needs to be determined accurately.

Q - 8

The correct answer is option C) Since the IRR rule is based upon the rate at which the NPV equals​ zero, like the NPV decision​ rule, the IRR decision rule will always identify the correct investment decisions.

IRR rule doesn't always gives us the correct decision. Many a times we see a conflict in decision based on NPV or IRR rule.

Q - 9

The correct answer is option C) The internal rate of return (IRR) investment rule is based upon the notion that if the return on other alternatives is greater than the return on the investment opportunity you should undertake the investment opportunity.

If the return on other alternatives is greater than the return on the investment opportunity you should not undertake the investment opportunity.

Q - 10

The correct answer is option A) In​ general, the IRR rule works for a stand-alone project if all of the​ project's positive cash flows precede its negative cash flows.