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Basic Question 27 of 29
Which of the following statements is false?
B. The IRR method indicates accepting any investment project that has an internal rate of return greater than a firm's cost of capital.
C. The NPV method and IRR method yield correct decisions when cash flows are non-conventional.
D. The NPV method and MIRR method yield correct decisions when cash flows are non-conventional.
A. The NPV method indicates accepting any investment project with a positive NPV.
B. The IRR method indicates accepting any investment project that has an internal rate of return greater than a firm's cost of capital.
C. The NPV method and IRR method yield correct decisions when cash flows are non-conventional.
D. The NPV method and MIRR method yield correct decisions when cash flows are non-conventional.
User Contributed Comments 12
| User | Comment |
|---|---|
| kalps | Surely B is wrong, the IRR must be greater than CoC for a project to be accepted |
| morpheus918 | Read it again. That's what B says. |
| jaan | B is right... read it again its says IRR > CoC |
| mtcfa | B is 100% right. IRR is the rate where NPV = 0. If the cost of capital is less then the IRR, NPV is positive (i.e. the discounting effect is not as great). |
| Rotigga | MIRR method assumes that cashflows from all projects are reinvested at the cost of capital instead of IRR. |
| neenalisa | Why's the answer not D?? |
| czar | yes, could someone please help explain, why not D? thanks! |
| loisliu88 | can anyone tell me what is a MIRR. didn't find it. thanks |
| loisliu88 | well, give a guess. is it Multiple IRR? |
| LONG | MIRR: Modified Internal Rate of Return. for Reinvestment Rate of the cash inflow |
| Speer | D is a correct statement because MIRR takes into considaration multiple cash flows-it doesnt change like IRR- and gives the same result as NPV. |
| ashish100 | "investopedia.com" ladies and gentlemen. this is the cfa god damn it. guesses ruin lives out here |
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.