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Which of the following statements is FALSE? Select one: A
Which of the following statements is FALSE?
Select one:
A. The IRR investment rule states you should turn down any investment opportunity where the IRR is less than the opportunity cost of capital.
B. There are situations in which multiple IRRs exist.
C. 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.
D. The IRR investment rule states that you should take any investment opportunity where the IRR exceeds the opportunity cost of capital.
Expert Solution
IRR is based on relative rates where as NPV is absolute values. So IRR may not always yield correct answer. It is influenced by the initial investment amount as well as the timing and amount of cash inflows in later years.
The correct option is C "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".
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