QUESTIONS1. The net present value of an investment represents the difference between the investment’s:
A. cash inflows and outflows.
B. cost and its net profit.
C. cost and its market value.
D. cash flows and its profits.
E. assets and liabilities.
According to the textbook, section 8.1, the difference between an investment’s market value and its cost is called the net present value of the investment, that is why the answer is C.
2. Which one of the following statements is correct? The Internal rate of return (IRR) is the discount rate that makes the net present value of an investment zero while the required return is an expected return you need in order to make an investment. At this point, the project’s cash flows are equal to the project cost.
3. The internal rate of return is unreliable as an indicator of whether or not an investment should be accepted given which one of the following?
When two investments are mutually exclusive, then taking one of them also means we cannot take the other. Thus, the internal rate of return (IRR) is unreliable as an indicator concerning mutually exclusive investment decisions.
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