Question

Which of the following statements is correct?

A. If a project has multiple IRRs, all IRRs must exceed the required rate of return for the project to be accepted.
B. If a project is independent, it cannot have multiple IRRs.
C. If two projects are mutually exclusive, they are likely to have multiple IRRs.

Answer 1

The correct statement is that if two mutually exclusive projects are likely to have multiple IRRs.

Step-by-step explanation:

The correct statement in this case is Option C: If two projects are mutually exclusive, they are likely to have multiple IRRs.

IRR, or Internal Rate of Return, is a financial metric used to evaluate the profitability of an investment or project. It is the discount rate that makes the net present value (NPV) of the project's cash flows equal to zero.

In the case of mutually exclusive projects, which are projects that compete with one another and only one can be accepted, it is possible for them to have multiple IRRs due to the different cash flow patterns and investment amounts of each project.