Question

15. According to the textbook, which of the following statements is (are) correct?
(x) The internal rate of return is a capital budgeting technique that generates decision rules and associated
metrics for choosing projects based upon the implicit expected geometric average of a project's rate of return.
(y) To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero.
(z) The IRR statistic assumes that the reinvestment rate is the IRR.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (z) only

16. According to the textbook, which of the following statements is (are) correct?
(x) The Profitability Index (PI), measures the excess return (the amount above and beyond the cost of capital for a project), rather than the gross return.
(y) The benchmark for the Profitability Index, PI, is one or anything larger than one.
(y) If the NPV of the cash inflows is positive but less than the amount of the initial investment then the Profitability Index, PI, is less than one.
A. (x), (y) and (z)
B. (x) and (y) only
C. (x) and (z) only
D. (y) and (z) only
E. (y) only

Answer 1

15. Option A. all the three options given are correct about IRR. first option is Defination. Second Option is application. Third Option is Assumption. all are correct.

16. Option A. all are correct. First option is explanation of how PL works. second option is decision rule. third Option is formula for Negative PI