Which of the Following Statements Is CORRECT

question 53

Multiple Choice

Which of the following statements is CORRECT?

• A)For a project to have more than one IRR, then both IRRs must be greater than the WACC.
• B)If two projects are mutually exclusive, then they are likely to have multiple IRRs.
• C)If a project is independent, then it cannot have multiple IRRs.
• D)Multiple IRRs can only occur if the signs of the cash flows change more than once.
• E)If a project has two IRRs, then the smaller one is the one that is most relevant, and it should be accepted and relied upon.

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Definitions:

Debenture Bonds

Financial securities issued by a company that are backed only by the issuer's creditworthiness and general reputation, not by physical assets.

Effective-Interest Method

A method of computing the amortized cost of a bond and of allocating interest expense over its relevant period.

Operating Lease

A lease agreement that allows for the use of an asset but does not convey rights of ownership to the lessee.

Capital Lease

A leasing arrangement that is treated like an asset purchase for accounting purposes, where the lessee records the leased asset as if it has been purchased.