Question

Book rate of return and profitability index are the two most commonly used investment criteria. True...

  1. Book rate of return and profitability index are the two most commonly used investment criteria.

    True

    False

  2. The IRR rules states that you invest if the project IRR is greater than the opportunity cost of capital.

    True

    False

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Answer #1

NPV and Internal rate of return (IRR) are the most commonly used investment criteria for evaluating mutually exclusive and independent projects. Book rate of return and Profitability index are lesser used measures of evaluation

Answer is False

IRR or Internal rate of return is the rate at which NPV equals zero. So as per IRR rule, whenever the IRR > Opportunity cost of capital, the project is a feasible investment and needs to be accepted.

Answer is True

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