Question

Which of the following statements is true?

Group of answer choices

The payback investment rule is based on the notion that an opportunity that pays back its initial investments quickly is not a good idea

An internal rate of return (IRR) can’t be a negative number for an investment opportunity.

Net present value (NPV) always is less reliable than IRR for an investment opportunity.

In general, there can be as many internal rates of return (IRRs) as the number of times the project's cash flows change sign over time.

Answer 1

• The payback rule suggests the opportunity that pays back its initial investments quickly is a good idea, so this option is incorrect
• IRR can be negative when the sum of cashflowsis lower than the initial investment. So this option is incorrect
• NPV is always more reliable than IRR because there can be multiple IRRs if the CF stream is unconventional. So this option is incorrect
• In general, there can be as many IRRs as the number of times the project's cash flows change sign over time. This is a true statement because when the CFs have multiple sign changes, they are call unconventiona CFs and there can be multiple IRRs