Assume That You Are Comparing Two Mutually Exclusive Projects

question 70

Multiple Choice

Assume that you are comparing two mutually exclusive projects. Which of the following statements is most correct?

• A) The NPV and IRR rules will always lead to the same decision unless one or both of the projects are "non-normal" in the sense of having only one change of sign in the cash flow stream, i.e., one or more initial cash outflows (the investment) followed by a series of cash inflows.
• B) If a conflict exists between the NPV and the IRR, the conflict can always be eliminated by dropping the IRR and replacing it with the MIRR.
• C) There will be a meaningful (as opposed to irrelevant) conflict only if the projects' NPV profiles cross, and even then, only if the cost of capital is to the left of (or lower than) the discount rate at which the crossover occurs.
• D) Statements a, b, and c are true.

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Definitions:

General Adaptation Syndrome (GAS)

General Adaptation Syndrome (GAS) is a theoretical model describing the body's short-term and long-term reactions to stress, including stages of alarm, resistance, and exhaustion.

Resistance Stage

The second phase of the General Adaptation Syndrome, where the body mobilizes its defenses to adapt to stressors.

Daily Hassles

Regular minor irritations or annoyances that people encounter in their everyday lives, which can accumulate and impact mental health.

Environmental Hassles

Daily, minor annoyances or problems that individuals encounter in their environment, which can accumulate and contribute to larger stress levels.