Question

1(a). (TRUE or FALSE?) If projects A & B are mutually exclusive and their NPVs are less than zero, accept both projects.

1(b). (TRUE or FALSE?) Internal rate of return method shows how many years take to recoup the initial investment.

1(c). (TRUE or FALSE?) Any time you consider investing in a project, you will not actually receive the IRR unless you can reinvest the project’s intervening cash flows at the IRR.

Answer 1

Solution:
1.(a).	Answer is "FALSE"
Working Notes:
	In case of projects mutually exclusive projects , then only one project can be accepted which have higher positive NPV.
	But in the given cases both the projects have NPV less than ZERO , hence both the projects should be rejected.
	In the given question it is saying both the projects should be accepted , which is not correct , hence false.
1 (b) .	Answer is "FALSE"
Working Notes:
	Internal rate of return method get the discount rate or rate of return at which the net present value of future cash flows is equal to the initial investment. Not years take to recoup the initial investment.
	In fact , Payback period method shows the years in which initial investment is recovered.
	Hence, the given statement is false.
1. (c').	Answer is TRUE
Working Notes:
	IRR method assumption is that the company will reinvest cash inflows at the IRR's rate of return during the life of project.
	Hence , the given statement is "TRUE " that the Any time you consider investing in a project, you will not actually receive the IRR unless you can reinvest the project’s intervening cash flows at the IRR.