In Which of the Following Scenarios Will the IRR Always

question 11

Multiple Choice

In which of the following scenarios will the IRR always provide you with the correct, wealth-maximizing decision?

• A)Whenever you are evaluating an independent project--i.e., one that is not affected by the acceptance or rejection of another project.
• B)When you are evaluating mutually exclusive projects that have different investment requirements.
• C)When you are evaluating a single project that requires an initial cash outflow followed by positive cash flows in subsequent years.
• D)The IRR will provide you with the correct, wealth-maximizing decision in all of the above situations.

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Definitions:

Profit Center

A part of an organization that is directly responsible for generating its own revenue and profits.

Fixed Assets

Long-term tangible assets, such as buildings, machinery, and equipment, used in operating a business and not expected to be converted to cash in the current or next fiscal year.

Yearly Income

The total amount of income generated by a person or entity in one fiscal year.

Return On Investment

A measure used to evaluate the efficiency or profitability of an investment, calculated by dividing the net profit from an investment by the original capital cost.