When the Internal Rate of Return (IRR) Method and the Net

question 33

Multiple Choice

When the internal rate of return (IRR) method and the net present value (NPV) method do not yield the same recommendation for the same investment project, the project-selection decision should normally be based on:

• A) IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment.
• B) NPV, because it takes into consideration the relative size of the initial investment.
• C) IRR, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
• D) NPV, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
• E) IRR, because all reinvestment of funds occurs at the rate the project generates and because it takes into consideration the relative size of the initial investment.

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Definitions:

Taking the Role

The process of mentally assuming the perspective of another to understand their thoughts, feelings, and behaviors, a concept significant in sociology and psychology.

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Distinctions in characteristics, behaviors, roles, and expectations traditionally associated with being male or female.

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The period in a person's life from birth to adolescence, characterized by growth, development, and learning.

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A set of expectations for behavior and actions that are deemed appropriate for individuals based on their status or position within society.