Which of the Following Statements Is False

question 68

Multiple Choice

Which of the following statements is false?

• A) When using the incremental IRR rule, you must keep track of which project is the incremental project and ensure that the incremental cash flows are initially positive and then become negative.
• B) Picking one project over another simply because it has a larger IRR can lead to mistakes.
• C) Problems arise using the IRR method when the mutually exclusive investments have differences in scale.
• D) When the risks of two projects are different, only the NPV rule will give a reliable answer.

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Definitions:

Conversion Price

The predetermined price at which convertible securities, like bonds or preferred stocks, can be exchanged for a specified amount of another form, typically common stock.

Expected Return

Expected return is the anticipated amount of profit or loss an investment is projected to generate, based on historical or forecasted performance.

Warrants

Warrants are a type of security that gives the holder the right to purchase a company’s stock at a specific price until the expiration date.

Long-term Call Options

Financial derivatives granting the holder the right, but not the obligation, to buy a security at a fixed price within a specific long-term period.