The Reason Why the IRR Criterion Can Give Conflicting Signals

question 56

Multiple Choice

The reason why the IRR criterion can give conflicting signals with mutually exclusive projects is:

• A)The NPVs of these projects cross over at some discount rate
• B)Discounted cash flow is not considered with mutually exclusive projects
• C)IRR performs better with accounting returns than with cash flows
• D)Mutually exclusive projects have multiple IRRs

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Definitions:

Tree Diagram

A graphical representation that helps in visualizing a multiple-step experiment.

Permutations

Arrangements of a set of objects in which the order of the objects matters.

Experimental Outcomes

The possible results or observations that may be obtained in an experiment, reflecting the impact of various factors or variables.

Objects

Objects are instances of classes or types in programming, representing data with attributes and methods, or in a broader sense, physical entities that exist in the real world.