Sometimes When Management Decisions Are Reached, the Investment Project with the Highest

question 9

Multiple Choice

Sometimes when management decisions are reached, the investment project with the highest NPV or IRR is not selected.This occurs because:

• A)a lower IRR is a less risky investment.
• B)the highest NPV is not necessarily the highest IRR.
• C)qualitative factors override quantitative analysis techniques.
• D)sometimes management makes the wrong decision.

---

Definitions:

Capital Gain

The profit earned from the sale of an asset when its selling price exceeds its purchase price.

High-duration

Describes bonds or other fixed-income securities that have high sensitivity to changes in interest rates, usually because they have a long time until maturity.

Low-duration

Refers to investments that have a short time until maturity, typically associated with lower interest rate risk.

Duration

A measure of the sensitivity of the price of a bond or other debt instrument to a change in interest rates, expressed in years.