Two Fellow Financial Analysts Are Evaluating a Project with the Following

question 70

Multiple Choice

Two fellow financial analysts are evaluating a project with the following net cash flows: One analyst says that the project has an IRR of between 12 and 13%.The other analyst calculates an IRR of just under 800%, but fears his calculator's battery is low and may have caused an error.You agree to settle the dispute by analysing the project cash flows.Which statement best describes the IRR for this project?

• A) There is a single IRR of approximately 12.7 percent.
• B) This project has no IRR, because the NPV profile does not cross the X axis.
• C) There are multiple IRRs of approximately 12.7 percent and 787 percent.
• D) This project has two imaginary IRRs.
• E) There are an infinite number of IRRs between 12.5 percent and 790 percent that can define the IRR for this project.

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Definitions:

Validity

The extent to which a test, measure, or research accurately reflects or assesses the specific concept it is intended to.

Reliability

The degree to which an assessment tool or measurement can produce stable and consistent results over time.

Hypothesis

A proposed explanation made on the basis of limited evidence, serving as a starting point for further investigation.

Structuralism

A theoretical perspective in psychology that emphasizes understanding the structure of the mind by breaking it down into its component parts.