Which of the Following Is the Appropriate IRR Rule

question 6

Multiple Choice

Which of the following is the appropriate IRR rule?

• A)When there are multiple IRRs,select the one with the smallest IRR.
• B)When there are multiple IRRs,select the one with the largest IRR.
• C)In the absence of constraints,a project with a delayed cash flow stream should be adopted only if its IRR is less than the hurdle rate.
• D)In the absence of constraints,a project with an early cash flow stream should be adopted only if the hurdle rate exceeds the IRR of the project.

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Definitions:

Externalities

Economic side effects or consequences of an industrial or commercial activity that affect other parties without being reflected in the costs of the goods or services involved.

Coase Theorem

A principle that asserts if property rights are clearly defined and transaction costs are low, private negotiations will lead to the efficient resolution of disputes over the allocation of resources.

Transaction Costs

The costs that parties incur during the process of agreeing to and following through on a bargain.

Mutually Beneficial Agreement

An arrangement between parties where both or all receive benefits or advantages.