Which of the following is true?
a. When disinflation occurs, investors are less likely to purchase stocks and bonds, and companies will find it difficult to obtain financing.
b. Profitability ratios are distorted by inflation because sales are stated in current dollars and inventory is stated in historical dollars.
c. When inflation occurs, the purchasing power of the dollar rises with the price level.
d. Falling prices usually lead to higher after-tax income for companies.
e. None of the above.
2. Wind Farms is considering a project that has an NPV of $32,600, an IRR of 15.1 percent, and a payback period of 3.2 years. The required return is 14.5 percent and the required payback period is 3.0 years. Which one of the following statements correctly applies to this project?
The payback decision rule could override the accept decision indicated by the net present value.
The net present value indicates accept while the internal rate of return indicates reject.
Payback indicates acceptance.
The payback rule will automatically be ignored since both the net present value and the internal rate of return indicate an accept decision.
The net present value decision rule is the only rule that matters when making the final decision.