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Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.
Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.
- a)Statement-I is incorrect, statement-II is correct
- b)The statements I and statement II are correct
- c)Statement-I is correct, statement II is incorrect
- d)The statements I and statement II are incorrect
Correct answer is option 'B'. Can you explain this answer?
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Statement-I: In general, the NPV and IRR methods lead to the same acce...
The NPV and IRR methods actually lead to the same acceptance or rejection decision rule where there is a single project because fordiscount rates greater than the IRR, the NPV is negative.
The inconsistency in ranking of competing projects as per the NPV and IRRmethods is because the NPV method assumes that cash flows from the project are reinvested at thediscount rate.
The IRR method assumes that cash flows are reinvested at the internal rate of return of the project
In case of single project, NPV and IRR will provide the same result regarding decision of accepting and rejecting the project. NPV derives the required rate of return and IRR derives the rate of return where NPV will be zero.
However, when comparing two projects, the NPV and IRR may give different results because NPV and IRR have different cash flow patterns.
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Statement-I: In general, the NPV and IRR methods lead to the same acce...
Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.
Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.
Explanation:
The Net Present Value (NPV) and Internal Rate of Return (IRR) are two commonly used investment appraisal techniques. Both methods help in evaluating the financial viability of a project or investment. Let's analyze each statement individually to understand their accuracy.
Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.
This statement is correct. The NPV and IRR methods generally lead to the same acceptance or rejection decision for a single project. Both methods consider the time value of money and discount future cash flows to their present value. If the NPV is positive (greater than zero), it means the project is expected to generate a positive return on investment. Similarly, if the IRR is higher than the required rate of return, the project is considered acceptable. Therefore, both methods provide the same outcome in terms of accepting or rejecting a single project.
Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard to different rates of returns on reinvestment of intermediate cash flows.
This statement is also correct. The inconsistency in ranking competing projects using NPV and IRR arises due to the assumption of different reinvestment rates for intermediate cash flows. The IRR assumes that the cash flows generated by the project are reinvested at the IRR itself, while the NPV assumes that the cash flows are reinvested at the project's required rate of return. This difference in reinvestment rates can lead to inconsistencies in ranking competing projects.
For example, if two projects have similar initial investments and cash flows, but different project durations, the IRR may favor the project with a shorter duration, assuming a higher reinvestment rate. On the other hand, the NPV may favor the project with a longer duration, assuming a lower reinvestment rate. This difference in ranking can create confusion when comparing multiple projects using these methods.
In conclusion, both Statement-I and Statement-II are correct. The NPV and IRR methods generally lead to the same decision for a single project, but inconsistencies in ranking can arise when comparing competing projects due to different assumptions about reinvestment rates.
Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.
Explanation:
The Net Present Value (NPV) and Internal Rate of Return (IRR) are two commonly used investment appraisal techniques. Both methods help in evaluating the financial viability of a project or investment. Let's analyze each statement individually to understand their accuracy.
Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.
This statement is correct. The NPV and IRR methods generally lead to the same acceptance or rejection decision for a single project. Both methods consider the time value of money and discount future cash flows to their present value. If the NPV is positive (greater than zero), it means the project is expected to generate a positive return on investment. Similarly, if the IRR is higher than the required rate of return, the project is considered acceptable. Therefore, both methods provide the same outcome in terms of accepting or rejecting a single project.
Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard to different rates of returns on reinvestment of intermediate cash flows.
This statement is also correct. The inconsistency in ranking competing projects using NPV and IRR arises due to the assumption of different reinvestment rates for intermediate cash flows. The IRR assumes that the cash flows generated by the project are reinvested at the IRR itself, while the NPV assumes that the cash flows are reinvested at the project's required rate of return. This difference in reinvestment rates can lead to inconsistencies in ranking competing projects.
For example, if two projects have similar initial investments and cash flows, but different project durations, the IRR may favor the project with a shorter duration, assuming a higher reinvestment rate. On the other hand, the NPV may favor the project with a longer duration, assuming a lower reinvestment rate. This difference in ranking can create confusion when comparing multiple projects using these methods.
In conclusion, both Statement-I and Statement-II are correct. The NPV and IRR methods generally lead to the same decision for a single project, but inconsistencies in ranking can arise when comparing competing projects due to different assumptions about reinvestment rates.
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Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer?
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Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer? for UGC NET 2024 is part of UGC NET preparation. The Question and answers have been prepared according to the UGC NET exam syllabus. Information about Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UGC NET 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer?.
Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer? for UGC NET 2024 is part of UGC NET preparation. The Question and answers have been prepared according to the UGC NET exam syllabus. Information about Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer? covers all topics & solutions for UGC NET 2024 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer?.
Solutions for Statement-I: In general, the NPV and IRR methods lead to the same acceptance or rejection decision, when a single project is involved.Statement-II: The inconsistency in ranking of competing projects as per the NPV and IRR methods lies in the implicit assumptions with regard of different rates of returns on re-investment of intermediate cash flows.a)Statement-I is incorrect, statement-II is correctb)The statements I and statement II are correctc)Statement-I is correct, statement II is incorrectd)The statements I and statement II are incorrectCorrect answer is option 'B'. Can you explain this answer? in English & in Hindi are available as part of our courses for UGC NET.
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