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A firm makes investment decisions by first computing the NPV of a project using a project-specific discount rate. Of these, the projects that are determined
A firm makes investment decisions by first computing the NPV of a project using a project-specific discount rate. Of these, the projects that are determined to have a positive NPV are then subsequently re-evaluated using the IRR decision rule (assume all projects are investment projects with conventional cash flows). Projects whose IRRs exceed the overall firm's cost of capital are approved, while those whose IRRs are less than the overall firm's cost of capital are rejected. What of the following is true of this decision rule? O a. The firm can instead make correct investment decisions using its IRR rule from the second step alone, skipping the first step altogether. O b. The firm may incorrectly reject some projects that are expected to increase firm value. . The firm may incorrectly approve some projects that are expected to destroy firm value. O d. All of these answers are correct. O e. Management will be more confident in its decisions than it would have been had it used a single investment decision rule
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