Question

Which of the following statements is true of various methods for capital budgeting?​

Select one:

a. ​The discounted payback is generally shorter than the regular payback.

b. ​Any type of project might have multiple rates of return if the IRR is more than the opportunity rate of return.

c. ​The NPV and IRR methods can lead to conflicting accept/reject decisions only if mutually exclusive projects are being evaluated

d. ​The NPV and IRR methods can lead to conflicting accept/reject decisions only if independent projects are being evaluated

e. ​Larger, longer-term projects are favored over smaller, shorter- term alternatives if the required rate of return is relatively high.

Answer 1

The correct answer is option ''C" . The NPV and IRR methods can leads to conflicting accept/reject decisions only if mutual exclusive projects are being evaluated.

In mutually exclusive projects acceptance of one project exclude the other project. The conflict arises between NPV and IRR due to related size of projects or due to different cash flows distribution of projects. so best project must be accepted .

Statement A is false becoz in capital budgeting whenever the cash flows are discounted, the discounting cashback period has longer than the regular payback period.

Statement D is false becoz independent projects are those projects in which acceptance of one projects does not effect the acceptance of another one . so all independent projects can be accepted if they add value , so conflict of NPV and IRR doesn't arise.

Statement B is false Becoz multiple IRR occurs in project that have non normal cash flows.