GK
ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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If IRR is less than the firm’s cost of capital, the project should be rejected
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A project can have multiple IRRs depending on the cash flow streams
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Both (a) and (b)
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A project can have only one IRR
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Detailed explanation-1: -The correct answer is a. 1. IRR is the rate at which the net present value is nil. It is the discounted value of cash inflow minus the original investment and hence it is not the difference between two project’s cashflows.
Detailed explanation-2: -Answer: b ) As long as you are not dealing with mutually exclusive projects, capital rationing, or unusual projects having multiple sign changes in the cash-flow stream, the internal rate of return method can be used with reasonable confidence . 33 .
Detailed explanation-3: -Which of the following statements best describe the IRR? The rate of return on the investment calculated based on cash inflows and outflows.
Detailed explanation-4: -For a project to have more than one IRR, then both IRRs must be greater than the WACC. Multiple IRRs can only occur if the signs of the cash flows change more than once.