Question

Which of the following statements is INCORRECT? Select one:

a. For independent projects, the decision to accept or reject will always be the same using either the MIRR method or the NPV method.

b. The IRR method is appealing to some managers because it produces a rate of return upon which to base decisions rather than a dollar amount like the NPV method.

c. One of the disadvantages of choosing between mutually exclusive projects on the basis of discounted payback method is that you might choose the project with the faster payback period but with lower total return.

d. When choosing between mutually exclusive projects, managers should accept all projects with IRRs greater than the weighted average cost of capital.

e. When choosing between mutually exclusive projects, managers should accept projects with higher positive NPVs.

Answer 1

Option d is the only incorrect statement because IRR gives conflicting results as compared to NPV. In mutually exclusive projects NPV and not IRR should be preferred. . IRR rate is higher than WACC generally so reinvestment as higher than WACC may not be possible always.

However for independent project IRR greater than WACC can be criteria.

All other statements are correct