There Is Sometimes a Ranking Problem Among NPV and IRR

question 136

Multiple Choice

There is sometimes a ranking problem among NPV and IRR when selecting among mutually exclusive investments. This ranking problem only occurs when

• A) the NPV is greater than the crossover point.
• B) the NPV is less than the crossover point.
• C) the cost of capital is to the right of the crossover point.
• D) the cost of capital is to the left of the crossover point.

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Definitions:

Margin

An accounting term that refers to the difference between the selling price of a product or service and its cost, often expressed as a percentage of the selling price.

Sales

The total revenue generated from goods or services sold by a company during a particular period.

Combined Residual Income

The total leftover income from various projects or divisions after accounting for required rate of return or capital costs.

Required Rate Of Return

The minimum expected yield by investors to justify the risk of an investment.