Question

Which of the following statements is correct:

A. projects with unconventional cash flows have multiple internal rates of return

B. if 2 projects are mutually exclusive, you should select the project with the shortest payback period

C. If the IRR exceeds the required return, the profitability index will be less than 1.0

D. the Profitability index will be greater than 1.0 when the net present value is negative

E. when the internal rate of return is greater than the required return, the net present value is negative.

Answer 1

Option A and B is correct

A: If 2 projects are mutually exclusive, you should select the project with the shortest payback period - Correct

B: Projects with unconventional cash flows have multiple internal rates of return - where cash flows will have more than one different cash flow signs hence

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C: The Profitability index will be greater than 1.0 when the net present value is negative - wrong,

since net present value will be positive if profitability index is greater than 1.0

D: When the internal rate of return is greater than the required return, the net present value is negative - Wrong

Since net present value is positive if internal rate of return is greater than required return