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.

---

Definitions:

Incidence

Refers to how the burden of a tax is distributed between buyers and sellers in the market.

Efficiency Loss

The loss of economic efficiency that can occur when the equilibrium for a good or service is not achievable or not achieved.

Excise Tax

A tax charged on specific goods and services, such as tobacco, alcohol, and gasoline, typically imposed at the manufacturing or production level.

Perfectly Elastic

A situation in economics where the quantity demanded or supplied responds infinitely to changes in price.