Which of the following statements is most correct?
A) One of the disadvantages of choosing between mutually exclusive projects on the basis of the discounted payback method is that you might choose the project with the faster payback period but with the lower total return.
B) Multiple IRRs can occur in cases when project cash flows are normal, but they are more common in cases where project cash flows are nonnormal.
C) When choosing between mutually exclusive projects, managers should accept all projects with IRRs greater than the weighted average cost of capital.
D) All of the statements above are correct.
E) Two of the statements above are correct.

Question

Quizplus · Accepted Answer

The statement in option A is the most correct as it highlights the potential flaw in using the discounted payback method to choose between mutually exclusive projects. Option B is partially correct but not precise as multiple IRRs can occur in both normal and nonnormal project cash flows. Option C is not entirely accurate as managers should only accept projects with IRRs greater than the required rate of return, which may differ from the weighted average cost of capital. Therefore, only option A is the most correct.

Which of the Following Statements Is Most Correct