Which of the following statements regarding the evaluation of mutually exclusive projects using the NPV and/or IRR approaches is least accurate?
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Whenever a conflict exists between the IRR and NPV approaches, the project with the highest NPV should be selected.
[此贴子已经被作者于2011-3-22 15:15:53编辑过]
Which of the following statements is most accurate regarding the evaluation of real estate investments that require relatively large cash expenses during the life of the investment?
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When there is a reversal in the signs of the investment’s cash flows, it is likely that multiple IRRs will exist. This renders the IRR evaluation approach ineffective.
Which of the following cash flow streams is most likely to have multiple IRRs?
Purchase Price | Cash Flow 1 | Cash Flow 2 |
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When there is a reversal in the sign of the cash flows, it is likely that there will be multiple IRR solutions. In fact, for the cash flow stream {-1.8; 10; -9} the IRRs are 13 and 343%.
An investment consortium is evaluating two mutually exclusive real estate investment opportunities: a multi-unit apartment complex, and a local shopping center. This investment group requires a 9% after-tax return on equity capital. For the apartment complex, net present value (NPV) and internal rate of return (IRR) analysis result in an NPV of USD7.5 million and an IRR of 11%. For the shopping center, the NPV is USD6.8 million and the IRR is 14%. If the investors require an after-tax return of 9% on either investment, which of the two investments should be undertaken?
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Since the projects are mutually exclusive, only one may be selected. When ranking conflicts exist between the IRR and NPV approaches, the project with the highest NPV should be selected.
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