The possibility that more than one discount rate will make the NPV of an investment equal to zero is called the _____ problem.
A)net present value proﬁling
B)operational ambiguity
C)mutually exclusive investment decision
D)issues of scale
E)multiple rates of return

Question

Quizplus · Accepted Answer

The problem described in the question is known as the multiple rates of return problem, where there is more than one discount rate that can make the NPV of an investment equal to zero. This can happen when there are non-conventional cash flows, such as when there are multiple changes in the sign of the cash flows, or when there are mutually exclusive investment options. It is important to note that this problem does not occur when cash flows are conventional (i.e. there is only one change in the sign of the cash flows). Therefore, option E, multiple rates of return, is the correct answer.

The Possibility That More Than One Discount Rate Will Make