1. Which of the following statements regarding the Internal Rate of Return (IRR) is incorrect?
A. IRR is the discount rate at which the project’s NPV = 0.
B. If the IRR is greater than the required rate of return, the project is acceptable.
C. To find the IRR of a project you need to know the project’s cash flows and discount rate.
D. For some projects there can be multiple IRRs or no IRRs.
2. Select the incorrect statement regarding a typical capital budgeting process.
A. The process typically begins with the identification of the project being considered.
B. Cash flow estimation, risk assessment, and selecting appropriate discount rates (cost of capital estimates) are important steps in the process.
C. The NPV rule is considered as the best tool for numerical evaluation of the project desirability, but IRR and some other tools are also widely used.
D. Nonfinancial factors (like real options) are difficult to evaluate, so they are almost always ignored in the process.