Which of the Following Is Most Correct

question 24

Multiple Choice

Which of the following is most correct?

• A) The NPV and IRR rules will always lead to the same decision in choosing between mutually exclusive projects, 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.
• B) The Modified Internal Rate of Return (MIRR) compounds cash outflows at the cost of capital.
• C) Conflicts between NPV and IRR rules arise in choosing between two mutually exclusive projects (that each have normal cash flows) when the cost of capital exceeds the crossover point (that is, the point at which the NPV profiles cross).
• D) The discounted payback method overcomes the problems that the payback method has with cash flows occurring after the payback period.
• E) None of the statements above is correct.

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Definitions:

Endowment Contribution

A donation made to an institution, with the stipulation that the principal amount must be maintained intact while the investment income can be used for organizational purposes.

Deferral Method

An accounting practice that postpones the recognition of revenue or expenses to a future period, rather than recording them in the period in which they are incurred.

Restricted Revenue

Funds received by an organization that are subject to limitations or conditions on how they can be used, often tied to specific projects or goals.

Encumbrance System

A method or system for tracking claims, liens, or restrictions on property to ensure clear title or usage rights.