A project has a negative cash flow at t = 0 and only positive cash flows afterwards. If the IRR is 20% and the cost of capital is 15%:

We should accept the project.

More information is needed to make the correct decision.

We should reject the project.

A project has a positive cash flow at t = 0 and only negative cash flows afterwards. If the IRR is 20% and the cost of capital is 15%:

We should accept the project.

We should reject the project.

More information is needed to make the correct decision.

Which of the following statements is FALSE?

The IRR rule states that you should take any investment opportunity where the IRR exceeds the opportunity cost of capital.

By setting the NPV equal to zero and solving for the discount rate, we find the IRR.

It is possible that no IRR exists for an investment opportunity.

The IRR rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital.

Since the IRR rule is based upon the rate at which the NPV equals zero, like the NPV decision rule, the IRR decision rule will always identify the correct investment decisions.

Which of the following statements is FALSE?

Group of answer choices

When we have to choose between two mutually exclusive projects, the IRR rule can lead to the wrong decision when the projects have different time horizons.

When we use the incremental project approach to choose between two mutually exclusive projects A and B, we should choose project A if the incremental project B - A has negative NPV.

When we have to choose between two mutually exclusive projects, we should pick the larger-scale project.

When we have to choose between two mutually exclusive projects, the IRR rule can lead to the wrong decision when the projects have different scale.

Select the two conditions that must be satisfied in order for the Profitability Index rule to give the right decision.

Group of answer choices

The set of projects selected using the Profitability Index rule must include the highest-NPV project.

The set of projects selected using the Profitability Index rule must include the lowest-cost project.

The set of projects selected using the Profitability Index rule must completely exhaust the budget limit.

Only one resource must be constrained.

You are trying to decide among mutually exclusive investment opportunities. The most appropriate tool for identifying the correct decision is:

Group of answer choices

the IRR.

the payback period.

the Profitability Index.

the discounted payback period.

the NPV.