Activity 2: Concept Check (IRR and NPV) Q3) Which of the following statements is FALSE? A The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital. B In a standalone project (independent project), the decision made by applying NPV investment rule is usually consistent with that of IRR investment rule. C Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions. D There are situations in which multiple IRRs exist. SUBMIT

Which of the following statements is FALSE? Question 3Answer A. The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital. B. The IRR investment rule states that you should take any investment opportunity where the IRR exceeds the opportunity cost of capital. C. There are situations in which multiple IRRs exist. D. Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions.

Which of the following statements is FALSE?Group of answer choicesThe IRR investment rule will identify the correct decision in many, but not all, situations.There are situations in which multiple IRRs exist.The IRR is affected by the scale of the investment opportunity.The payback rule is reliable because it considers the time value of money and depends on the cost of capital.

Which of the following statements is FALSE?Group of answer choicesProblems can arise using the IRR method when the mutually exclusive investments have differences in scale.Picking one project over another simply because it has a larger IRR can lead to mistakes.The profitability index measures the value created in terms of PV(Cash Flow) per unit of resource consumed.The profitability index alone can be easily adapted for determining the correct investment decisions when multiple resource constraints exist.

Activity 2: Concept Check Extension to Q2 (skip if time is restricted) State clearly if you would accept the following independent projects? Assume the opportunity cost of capital is 12% for each project and that the cash flows generated for each project are conventional. If you decide to undertake an investment in a project explain why? If you decide not to undertake investment in a project explain why not? (i) “Project alpha” has a small, but negative, NPV. (ii) “Project beta” has a very small positive NPV when discounted at 10%. (iii) “Project gamma” has a cost of capital that exceeds its rate of return. (iv) “Project delta” has a zero NPV when discounted at 14%.

Which of the following statements about the IRR method is/are true?       I.         IRR considers the time value of money    II.         If the IRR exceeds the cost of capital, the NPV will be positiveGroup of answer choicesI onlyII onlyI and IINone of the aboveNext