Use the information for the question(s) below.
Boulderado has come up with a new composite snowboard. Development will take Boulderado four years and cost $250,000 per year, with the first of the four equal investments payable today upon acceptance of the project. Once in production the snowboard is expected to produce annual cash flows of $200,000 each year for 10 years. Boulderado's discount rate is 10%.
-Which of the following statements is correct?
A) The normal IRR rule prevails to give the correct answer in unconventional cases; IRR itself also provides useful information in conjunction with the NPV rule.
B) Because the normal IRR rule fails to give the correct answer in unconventional cases, IRR itself cannot provide useful information in conjunction with the NPV rule.
C) Because the normal IRR rule can be used in conventional cases, it cannot provide useful information in conjunction with the NPV rule.
D) The normal IRR rule fails to give the correct answer in unconventional cases, but IRR itself still provides useful information in conjunction with the NPV rule.

Question

Quizplus · Accepted Answer

The information provided suggests that the project is an unconventional one, in which case the normal IRR rule may not give the correct answer. However, IRR still provides useful information in conjunction with the NPV rule. Therefore, option D is the correct statement.

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