1. Which of the following statement is not correct?
a. Based on the IRR rule, an investment is acceptable if the IRR exceeds the required return. It should be rejected otherwise.
b. The IRR on an investment is the required return that results in a zero NPV when it is used as the discount rate.
c. Net present value profile is a graphical representation of the relationship between an investment’s NPVs and various discount rates.
d. Payback period is the amount of time required for an investment to generate cash flows that recover its net present value.
2. If a firm uses its WACC as the discount rate for all of the projects it undertakes then the firm will tend to:
I. reject some positive net present value projects.
II. accept some negative net present value projects.
III. favor high risk projects over low risk projects.
IV. increase its overall level of risk over time.
A. I and III only
B. III and IV only
C. I, II, and III only
D. I, II, and IV only
E. I, II, III, and IV