The net present value, internal rate of return, and the profitability index meth
ID: 2619107 • Letter: T
Question
The net present value, internal rate of return, and the profitability index methods can give different rankings to mutually exclusive projects in certain cases. Which of the following is one of the possible reasons that causes contradictory rankings?
Projects have a similar trend of cash flows
Projects have different accounting rates of return
Projects have similar costs
Project lives of different durations
A.Projects have a similar trend of cash flows
B.Projects have different accounting rates of return
C.Projects have similar costs
D.Project lives of different durations
Explanation / Answer
The net present value, internal rate of return, and the profitability index methods can give different rankings to mutually exclusive projects in certain cases. A project life of different durations is one of the possible reasons that cause contradictory rankings.
Therefore correct answer is option D. Project lives of different durations.
The net present value, internal rate of return and the profitability index methods can give different rankings to mutually exclusive projects in certain cases. The possible reasons that cause contradictory rankings are –
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