Assume That You Are Comparing Two Mutually Exclusive Projects

question 77

Multiple Choice

Assume that you are comparing two mutually exclusive projects.Which of the following statements is most correct?

• A) The NPV and IRR rules will always lead to the same decision unless one or both of the projects are "non-conventional" in the sense of having only one change of sign in the cash flow stream,i.e. ,one or more initial cash outflows (the investment)followed by a series of cash inflows.
• B) If a conflict exists between the NPV and the IRR,the conflict can always be eliminated by dropping the IRR and replacing it with the payback period.
• C) There will be a meaningful (as opposed to irrelevant)conflict only if the projects' NPV profiles cross,and even then,only if the required rate of return is to the left of (or lower than)the discount rate at which the crossover occurs.
• D) Statements a,b,and c are all true.
• E) None of the above is a correct statement.

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Definitions:

Spearman Rank Correlation

A non-parametric measure of correlation that assesses the strength and direction of the association between two ranked variables, useful for ordinal data.

Pearson Correlation

A measure of the linear correlation between two variables, quantifying the degree to which they vary together.

Normal Distribution

A probability distribution that is symmetric about the mean, showing that data near the mean are more frequent in occurrence.

Likert Scale

A psychometric scale commonly involved in research that employs questionnaires, used to represent people's attitudes or feelings on a linear scale of several options ranging from one extreme to another.