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Basic Question 22 of 29
Which of the following statements is false?
B. The IRR method states that accepting projects with IRRs that exceed their cost of capital decreases shareholders' wealth.
C. The NPV and IRR criteria always lead to the same accept/reject decision when projects are independent and each project has one IRR.
D. The NPV and the IRR can lead to different accept/reject decisions.
A. The NPV method states that investment projects with positive NPV should be accepted.
B. The IRR method states that accepting projects with IRRs that exceed their cost of capital decreases shareholders' wealth.
C. The NPV and IRR criteria always lead to the same accept/reject decision when projects are independent and each project has one IRR.
D. The NPV and the IRR can lead to different accept/reject decisions.
User Contributed Comments 4
User | Comment |
---|---|
smillis | For C -- "always the same": what if the project sizes are different...couldn't the IRR indicate reject with a positive NPV. |
Charlie | For independent projects, the NPV and IRR methods make the same accept or reject decisions, irregardless of project sizes. |
rt2007 | what about multiple IRR - they can still be there even when the projects are independent ? So isnt 'C' also false ? |
vikram59 | The statement states one IRR |
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Learning Outcome Statements
describe the capital allocation process, calculate net present value (NPV), internal rate of return (IRR), and return on invested capital (ROIC), and contrast their use in capital allocation
CFA® 2024 Level I Curriculum, Volume 2, Module 5.