Graphing the NPVs of Mutually Exclusive Projects Over Different Discount

question 35

Multiple Choice

Graphing the NPVs of mutually exclusive projects over different discount rates helps demonstrate:

• A)how decisions concerning mutually exclusive projects are derived.
• B)how the incremental IRR varies with changes in the discount rate.
• C)how the payback period and the initial cash outflow of a project are related.
• D)how the duration of a project affects the decision as to which project to accept.
• E)how the profitability index and the net present value are related.

---

Definitions:

Normally Distributed Returns

Returns on investment that follow a bell-shaped curve, indicating that most of the returns are concentrated around the mean.

Standard Deviation

A measure of the dispersion of returns for a given security or market index, indicating the degree of volatility.

Passive Investment Strategies

Investment strategies that involve minimal buying and selling, often mirroring an index.

Active Trading Strategies

Investment strategies that involve frequent transactions, aiming to exploit short-term price movements to achieve profit.