Two Fellow Financial Analysts Are Evaluating a Project with the Following

question 19

Multiple Choice

Two fellow financial analysts are evaluating a project with the following net cash flows: One analyst says that the project has an IRR of between 12 and 13%.The other analyst calculates an IRR of just under 800%, but fears his calculator's battery is low and may have caused an error.You agree to settle the dispute by analyzing the project cash flows.Which statement best describes the IRR for this project?

• A) There is a single IRR of approximately 12.7 percent.
• B) This project has no IRR, because the NPV profile does not cross the X axis.
• C) There are multiple IRRs of approximately 12.7 percent and 787 percent.
• D) This project has two imaginary IRRs.
• E) There are an infinite number of IRRs between 12.5 percent and 790 percent that can define the IRR for this project.

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Definitions:

Ordered Array

An arrangement of data in which the values are aligned in ascending or descending order, facilitating statistical analysis and data visualization.

Pooled Sample Data

Combining data from multiple samples to create a larger sample, often used in statistical analysis to increase the reliability of results.

Normal Approximation

A statistical technique used to estimate the distribution of a large set of data using the normal distribution.

Standardized Test Statistic

A computed value that measures the difference between an observed statistic and its hypothesized value, scaled by the standard error.