Assume that you are comparing two mutually exclusive projects.

Which of the
following statements is most correct?

a. The NPV and IRR rules will always lead to the same decision unless one
or both of the projects are “non-normal” in the sense of having only
one change of sign in the cash flow stream, that is, one or more
initial cash outflows (the investment) followed by a series of cash
inflows.
b. If a conflict exists between the NPV and the IRR, the conflict can
always be eliminated by dropping the IRR and replacing it with the MIRR.
c. There will be a meaningful (as opposed to irrelevant) conflict only if
the projects’ NPV profiles cross, and even then, only if the cost of
capital is to the left of (or lower than) the discount rate at which the
crossover occurs.
d. All of the statements above are correct.
e. None of the statements above is correct.

Chapter 10 - Page 8
NPV and IRR Answer: a Diff: M 25. Which of the following statements is incorrect?

a. Assuming a project has normal cash flows, the NPV will be positive if
the IRR is less than the cost of capital.
b. If the multiple IRR problem does not exist, any independent project
acceptable by the NPV method will also be acceptable by the IRR method. c.
If IRR = k (the cost of capital), then NPV = 0.
d. NPV can be negative if the IRR is positive.
e. The NPV method is not affected by the multiple IRR problem. NPV and IRR Answer: e

Diff: M
26. Project J has the same internal rate of return as Project K. Which of the
following statements is most correct?

a. If the projects have the same size (scale) they will have the same NPV,
even if the two projects have different levels of risk.
b. If the two projects have the same risk they will have the same NPV,
even if the two projects are of different size.
c. If the two projects have the same size (scale) they will have the same
discounted payback, even if the two projects have different levels of
risk.
d. All of the statements above are correct.
e. None of the statements above is correct.

NPV, IRR, and MIRR Answer: a Diff: M 27. Which of the following statements is most
correct?

a. If a project with normal cash flows has an IRR that exceeds the cost of
capital, then the project must have a positive NPV.
b. If the IRR of Project A exceeds the IRR of Project B, then Project A
must also have a higher NPV.
c. The modified internal rate of return (MIRR) can never exceed the
IRR. d. Statements a and c are correct.
e. None of the statements above is correct.
NPV, IRR, and MIRR Answer: c Diff: M 28. Which of the following statements is most
correct?

a. The MIRR method will always arrive at the same conclusion as the NPV
method.
b. The MIRR method can overcome the multiple IRR problem, while the NPV
method cannot.
c. The MIRR method uses a more reasonable assumption about reinvestment
rates than the IRR method.
d. Statements a and c are correct.
e. All of the statements above are correct.

Chapter 10 - Page 9
NPV, IRR, and MIRR Answer: d Diff: M
29. Jurgensen Medical is considering two mutually exclusive projects with the
following characteristics:

 The two projects have the same risk and the same cost of capital.  Both
projects have normal cash flows. Specifically, each has an up front cost
followed by a series of positive cash flows.
 If the cost of capital is 12 percent, Project X’s IRR is greater than its
MIRR.
 If the cost of capital is 12 percent, Project Y’s IRR is less than its
MIRR.
 If the cost of capital is 10 percent, the two Project’s have the same
NPV.
Which of the following statements is most correct?

a. Project X’s IRR is greater than 12 percent.

b. Project Y’s IRR is less than 12 percent.
c. If the cost of capital is 8 percent, Project X has a lower NPV than
Project Y.
d. All of the statements above are correct.
e. None of the statements above is correct.

NPV, IRR, and payback Answer: e Diff: M

30. Project X has an internal rate of return of 20 percent. Project Y has an
internal rate of return of 15 percent. Both projects have a positive net
present value. Which of the following statements is most correct?

a. Project X must have a higher net present value than Project Y. b. If

the two projects have the same WACC, Project X must have a higher net
present value.
c. Project X must have a shorter payback than Project Y.
d. Statements b and c are correct.
e. None of the statements above is correct.