Which of the Following Statements Is Correct

question 12

Multiple Choice

Which of the following statements is correct?

• A)In general, the NPVs of riskier cash flows should be found using relatively high discount rates.However, if a cash flow is negative, it should be evaluated using a low discount rate.
• B)If a project has only costs (no revenues) as would certain environmental projects, then the project is likely to have two regular IRRs.
• C)If the NPV and IRR methods give conflicting rankings for two mutually exclusive projects, the payback period should be used to choose the project that should be purchased.
• D)It is better to use the NPV method to evaluate independent projects, but for mutually exclusive projects, especially if projects vary greatly in size, the IRR method is better.
• E)None of the above is a correct statement.

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Definitions:

Inflation Rate

The speed at which the generic pricing for goods and services elevates, undercutting the force of buying potential.

Macroeconomics

A branch of economics that studies how an economy as a whole functions, including total national income, total levels of employment, and how general price levels are determined.

Economy-Wide Phenomena

Broad trends or occurrences that affect the overall economic system, including inflation, unemployment, and national income.

Production Possibilities Frontier

An exhibit that delineates all possible highest production outputs for two types of goods, with consideration of a variety of inputs comprising resources and others.