Given a particular set of project cash flows, which of the following statements is correct?
A)there can be only one NPV for the project.
B)there can be only one IRR for the project.
C)there can be more than one NPV for the project.
D)there can be only one profitability index for the project.

Question

Quizplus · Accepted Answer

There can be multiple NPVs for a project if the cash flows change sign multiple times. This is known as the multiple internal rate of return (IRR) problem. Therefore, statement (C) is correct. Statement (A) is incorrect because there can be multiple NPVs due to the timing and magnitude of cash flows. Statement (B) is incorrect for the same reason as statement (A) - there can be multiple IRRs. Statement (D) is incorrect because different discount rates can result in different profitability indices.

Given a Particular Set of Project Cash Flows, Which of the Following