Which of the Following Statements Is CORRECT?Assume That the Project

question 56

Multiple Choice

Which of the following statements is CORRECT?Assume that the project being considered has normal cash flows, with one outflow followed by a series of inflows.

• A) if project a has a higher irr than project b, then project a must also have a higher npv.
• B) the irr calculation implicitly assumes that all cash flows are reinvested at the cost of capital.
• C) the irr calculation implicitly assumes that cash flows are withdrawn from the business rather than being reinvested in the business.
• D) if a project has normal cash flows and its irr exceeds its cost of capital, then the project's npv must be positive.
• E) if project a has a higher irr than project b, then project a must have the lower npv.

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Definitions:

Information Processing Errors

Mistakes made in analyzing and interpreting information which can lead to incorrect conclusions and potentially suboptimal decision-making.

True Probabilities

The actual likelihood of an event occurring, as opposed to estimated probabilities based on theoretical models or assumptions.

Information Processing

The process of gathering, storing, and manipulating data to produce meaningful information.

Fully Rational

Describes an economic theory assumption that individuals always make decisions that provide them with the highest amount of personal satisfaction or utility, based on full knowledge and a consistent evaluation of available information.