Which of the Following Statements Is CORRECT

question 29

Multiple Choice

Which of the following statements is CORRECT?

• A) The NPV, IRR, MIRR, and discounted payback (using a payback requirement of 3 years or less) methods always lead to the same accept/reject decisions for independent projects.
• B) For mutually exclusive projects with normal cash flows, the NPV and MIRR methods can never conflict, but their results could conflict with the discounted payback and the regular IRR methods.
• C) Multiple IRRs can exist, but not multiple MIRRs. This is one reason some people favor the MIRR over the regular IRR.
• D) If a firm uses the discounted payback method with a required payback of 4 years, then it will accept more projects than if it used a regular payback of 4 years.

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Definitions:

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting wear and tear or obsolescence.

Real-options Analysis

A financial modeling technique for valuing flexibility and decision-making in investment under uncertainty.

Incremental Analysis

The examination of the additional costs and benefits of certain decisions, focusing on the changes that would occur from choosing one alternative over another.

Payback Method

A capital budgeting technique that calculates the time required to recoup the cost of an investment.