Ranking Conflicts Can Arise If One Relies on IRR Instead

question 47

Multiple Choice

Ranking conflicts can arise if one relies on IRR instead of NPV when:

• A) The first cash flow is negative and the remaining cash flows are positive.
• B) Projects are independent of one another.
• C) A project has more than one NPV.
• D) Projects are mutually exclusive.
• E) The profitability index is greater than one.

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Definitions:

Expected Yield

The anticipated return on an investment, measured in income or value increase.

Total Utility

The complete satisfaction obtained from consuming a given amount of goods or services.

Investment Opportunities

Refers to financial or economic projects or assets in which an individual, company, or government can invest with the expectation of receiving future profits.

Risk Free

An investment with a certain return, with no possibility of financial loss.