When the NPV and IRR rules produce conflicting investment decisions, then the a.

Question

When the NPV and IRR rules produce conflicting investment decisions, then the a. NPV rule is superior. b. IRR rule is superior. c. firm should be indifferent between the IRR rule and NPV rule. d. payback period rule should be used. e. a and d 10. The relationship between NPV and IRR is such that a. both approaches always provide the same ranking of alternative investment projects. b. the IRR of a project is equal to the firm's cost of capital if the NPV of a project is $0. c. if the NPV of a project is negative, the IRR must be greater than the cost of capital. d. none of the above 11. A stand-alone project should be undertaken only if: a. the cost of capital is greater than the project's IRR b. the cost of capital is equal to the project's IRR c. the cost of capital is less than the project's IRR d. the NPV of the project is zero

Explanation / Answer

9 a. NPV Rule is superior Because in NPV calculations the reinvestment of cash inflows generated at the same discount rate used to discount cash outflows is implied. 10 b. The IRR of a project is equal to the firm's cost of capital if the NPV of a project is 0 At IRR ,the sum of the present values of a project's inflows is equal to the present values of its outflows.Hence NPV=0   If IRR> COC--- NPV is +ve. If IRR

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