Which of the following statements is INCORRECT? a. An NPV profile graph shows ho

Question

Which of the following statements is INCORRECT?

a. An NPV profile graph shows how a project’s NPV varies as the cost of capital changes.

b. Both NPV and IRR will not lead to conflicting decisions as long as the WACC is greater than the crossover rate and the projects are mutually exclusive.

c. IRR is the interest rate that forces the present value of the cash inflows equal cost, and the NPV=0.

d. We must know the exact cost of capital to draw a particular project’s NPV profile.

Which of the following statements is CORRECT?

a. If a project has more than one IRR, the highest IRR is the IRR of the project.

b. MIRR is more superior than IRR.

c. The assumption of the IRR method is superior to the assumption of the NPV method.

d. One of the reasons why NPV profile crossover is because of the project size or scale differences.

e. b and d

Explanation / Answer

1 - D is incorrect - We do not need to know the exact COC but we assume COC and calculate NPV.Calculating various NPV using different COC we prepare NPV profile.

2 - E - Is correct

MIRR corrects some of the limitations of IRR therefore is more superior,

Project size or scale differences and timing differences are the reasons because of which NPV profile crossover.

Please provide feedback... Thanks in Advance..:-)

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