The Underlying Cause of Conflicts in Ranking for Projects by Internal

question 52

Multiple Choice

The underlying cause of conflicts in ranking for projects by internal rate of return and net present value methods is

• A) the reinvestment rate assumption regarding intermediate cash flows.
• B) that neither method explicitly considers the time value of money.
• C) the assumption made by the IRR method that intermediate cash flows are reinvested at the cost of capital.
• D) the assumption made by the NPV method that intermediate cash flows are reinvested at the internal rate of return.

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Definitions:

Socially Optimal Price

The pricing point where the societal benefits of consuming a good or service equal the societal costs of providing it, leading to an efficient allocation of resources.

Deadweight Loss

A loss of economic efficiency that occurs when the equilibrium for a good or a service is not achieved or is unattainable.

Graphically Depict

To represent data or information visually using charts, graphs, or other pictorial forms.

Deadweight Loss

The loss of economic efficiency that can occur when the free market equilibrium for a good or a service is not achieved or is distorted by external intervention.