The NPV and IRR Methods, When Used to Evaluate Two

question 16

True/False

The NPV and IRR methods, when used to evaluate two equally risky but mutually exclusive projects, will lead to different accept/reject decisions and thus capital budgets if the cost of capital at which the projects' NPV profiles cross is greater than the projects' cost of capital.

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Definitions:

Asset Allocation Funds

Mutual funds that invest in a mixed proportion of assets (e.g., stocks, bonds, real estate) to diversify risk.

Balanced Funds

Mutual funds that invest in a mix of asset classes, usually stocks and bonds, aiming to reduce risk through diversification.

Restricted Stock

Shares of a company that are granted to employees as part of their compensation, subject to vesting periods and other restrictions.

Commingled Funds

Investment funds that pool assets from various accounts, combining them into one larger portfolio to achieve economies of scale and diversification.