Which of the Following Is Incorrect Regarding the IRR Statistic

question 25

Multiple Choice

Which of the following is incorrect regarding the IRR statistic?

• A) For independent projects, IRR will give the same accept/reject decision as NPV.
• B) For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive.
• C) To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero.
• D) None of the statements are incorrect.

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Definitions:

Compounded Monthly

A compound interest calculation method where interest is added to the principal balance each month.

RRSP

Registered Retirement Savings Plan, a Canadian financial vehicle for individuals to save for retirement on a tax-sheltered basis.

Nominal Rate

The advertised or stated interest rate on a loan or investment, not accounting for any fees or compounding of interest.

Effective Rate

The real interest rate on an investment or loan, taking into account the effect of compounding over a given period.