Which of the Following Statements Is CORRECT

question 35

Multiple Choice

Which of the following statements is CORRECT?

• A) To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the cost of capital to find the PV.
• B) The NPV and IRR methods both assume that cash flows can be reinvested at the cost of capital.However, the MIRR method assumes reinvestment at the MIRR itself.
• C) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years.
• D) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.
• E) For a project with normal cash flows, any change in the cost of capital will change both the NPV and the IRR.

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Definitions:

Purchasing Power Parity

An economic theory and a method used to determine the relative value of different currencies and the exchange rate needed to equalize the purchasing power of different currencies.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care.

Output Per Person

A measure of productivity calculated by dividing total output (such as GDP) by the number of people in the workforce or population.

Cross Price Elasticity

A measure of how the demand for a product changes in response to a change in the price of another related product.