Suppose a Firm Uses Both the Net Present Value (NPV)

question 69

Multiple Choice

Suppose a firm uses both the net present value (NPV) technique and the internal rate of return (IRR) technique to evaluate two mutually exclusive capital budgeting projects. If a ranking conflict exists between NPV and IRR, which of the following criteria should be used to make the final investment decision?

• A)The project with the higher IRR should be purchased.
• B)The project with an internal rate of return (IRR) equal to the firm's expected rate of return should be purchased.
• C)The project with the higher net present value (NPV) should be purchased.
• D)The project with the payback period equal to the expected years required to recover the original investment should be purchased.
• E)The project with the discounted payback period that is greater than its traditional payback period should be purchased.

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Definitions:

Synchronous

Occurring at the same time or rate; in synchronization.

Fibrous

Composed of or characterized by fibres, especially in the context of connective tissues.

Elastic

A property of materials that can return to their original shape after being stretched or compressed.

Syndesmosis

A type of fibrous joint in which two bones are joined together by a ligament or a membrane, allowing for minimal movement, such as the distal tibiofibular joint.