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Basic Question 26 of 29
Which statement best describes multiple IRR projects?
B. Projects that have more than one payback period are difficult to evaluate, since we don't know which period to use to evaluate the project.
C. Projects that have more than one internal rate of return are difficult to evaluate, since we don't know which rate to use to evaluate the project.
D. Projects that have more than one NPV are difficult to evaluate, since we don't know which rate to use.
A. Projects that have more than one cost of capital are difficult to evaluate, since we don't know which cost of capital to use to evaluate the project.
B. Projects that have more than one payback period are difficult to evaluate, since we don't know which period to use to evaluate the project.
C. Projects that have more than one internal rate of return are difficult to evaluate, since we don't know which rate to use to evaluate the project.
D. Projects that have more than one NPV are difficult to evaluate, since we don't know which rate to use.
User Contributed Comments 3
| User | Comment |
|---|---|
| sarath | Multiple IRRs occur when we have non-normal cash flows...and it is difficult to choose one particular IRR. |
| gouthamks | What if both all IRRs obtained are greater than the cost of capital ? |
| Bududeen | it is not possible for both IRRs to be greater than the cost of capital...since if they do, the project would have been rejected anyway because of -ve NPV...think about bell shaped NPV profile. |
I used your notes and passed ... highly recommended!
Lauren
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.