P7-26 (similar to) Question Help Consider two investment projects, which both re

ID: 2791449 • Letter: P

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P7-26 (similar to)

Question Help

Consider two investment projects, which both require an upfront investment of

million, and both of which pay a constant positive amount each year for the next

years. Under what conditions can you rank these projects by comparing their IRRs?

(Select the best choice below.)

There are no conditions under which you can use the IRR to rank projects.

Ranking by IRR will work in this case so long as the projects' cash flows do not decrease from year to year.

Ranking by IRR will work in this case so long as the projects' cash flows do not increase from year to year.

Ranking by IRR will work in this case so long as the projects have the same risk.

P7-26 (similar to)

Question Help

Ans D. Ranking by IRR will work in this case so long as the projects have the same risk.

IRR is beneficial when the projects have the same risk as in the question given.

All other options are not applicable on the situation, thus are incorrect.

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