Question

Question10MC 7 v1

Which two of the following five statements are correct?

Select two alternatives:

• There is no easy fix for the IRR rule when there are multiple IRRs.
• If there is a fixed supply of a resource available, you should rank projects by the profitability index, selecting the project with the lowest profitability index first and working your way down the list until the resource is consumed.
• The profitability index can can be easily adapted for determining the correct investment decisions when multiple resource constraints exist.
• You are trying to decide between three mutually exclusive investment opportunities. The most appropriate tool for identifying the correct decision is the profitability index.
• Picking one project over another simply because it has a larger IRR can lead to mistakes.

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Answer 1

A) There is no easy fix for the IRR rule when there are multiple IRR's ,and

E) Picking one project over another simply because it has a larger IRR can lead to mistakes.

These statements are true

Explanation: B),C),D) are false.

We cannot fix the multiple IRR problem easily.

Picking project simply on the basis of Irr can lead to mistakes because it does not take into consideration scale of the investment opportunity.

When choosing between mutually exclusive project we should use Npv rather than profitability index(PI) .

The project with highest PI should be chosen first and not the project with lowest PI .