Hi all,
in the schweser notes of reading 6 concept checkers the following question is mentioned:
which of the following statements least accurately describes the IRR and NPV methods;
A. The NPV tells how much the value of the firm has increased if you accept the project
B. When evaluating indepedent projects, the IRR and NOV methods always yeild the same accept/reject decisions
C. When selecting between mutually exclusive projects, the project with the highest NPV should be accepted regardless of the sign of the NPV calculation
I though that answer B was the best as this is not allways the case, e.g. if the IRR project 1 < IRR project 2 but NPV project 1 > NPV project 2. But according to the book the correct answer is C?
I see that negative NPV should be rejected, but imo B and C are both 'least accurate'. Can someone explain why C is the correct answer?
much appreciated!
Benjamin
in the schweser notes of reading 6 concept checkers the following question is mentioned:
which of the following statements least accurately describes the IRR and NPV methods;
A. The NPV tells how much the value of the firm has increased if you accept the project
B. When evaluating indepedent projects, the IRR and NOV methods always yeild the same accept/reject decisions
C. When selecting between mutually exclusive projects, the project with the highest NPV should be accepted regardless of the sign of the NPV calculation
I though that answer B was the best as this is not allways the case, e.g. if the IRR project 1 < IRR project 2 but NPV project 1 > NPV project 2. But according to the book the correct answer is C?
I see that negative NPV should be rejected, but imo B and C are both 'least accurate'. Can someone explain why C is the correct answer?
much appreciated!
Benjamin