In discounted cash flow analysis, which of the following is a bad decision rule?
A) If NPV

Question

In discounted cash flow analysis, which of the following is a bad decision rule?
A) If NPV < 0 then reject
B) If IRR < opportunity cost of capital then reject
C) If IRR c opportunity cost of capital then reject
D) If NPV c 0 then accept

Quizplus · Accepted Answer

Option C is a bad decision rule because it may lead to rejecting positive NPV projects that have an IRR less than the opportunity cost of capital. This is because the IRR does not account for the reinvestment rate of cash flows, which can be lower than the opportunity cost of capital. Option A, B, and D are all valid decision rules in discounted cash flow analysis.

In Discounted Cash Flow Analysis, Which of the Following Is