One defect of internal rate of return method

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Reference no: EM131907523

1. Which of the following statements is CORRECT? One defect of the internal rate of return (IRR) method is that it:

a. assumes that the cash flows to be received from a project can be reinvested at the IRR itself, and that assumption is often not valid.

b. does not take account of the time value of money

c. values a dollar received today the same as a dollar that will not be received until sometime in the future.

d. does not take account of cash flows over a project's full life.

2. Which of the following statements is CORRECT? Assume that the project being considered has normal cash flows, with one outflow at the beginning of the project, followed by a series of inflows.

a. To find a project's IRR, we must solve for the discount rate that causes the PV of the inflows to equal the project's cost.

b. The project will have multiple IRR's.

c. The project's NPV will always be positive.

d. If a project's IRR is greater than the WACC, then its NPV must be negative.

Reference no: EM131907523

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