Most Correct Statement

E

For mutually exclusive projects, a conflict can exist if the cost of capital is less than the crossover rate.

This question is related to the topic of capital budgeting and investment decision-making methods. Let's analyze each statement and determine which one is most correct:

A. None of the statements are correct. This statement suggests that none of the other statements provided are correct. However, we need to evaluate the remaining statements before concluding whether this statement is true or false.

B. The discounted payback method solves all the problems associated with the payback method. The payback method is a simple investment appraisal technique that calculates the time required for the cash flows of an investment to recover the initial investment. However, it has some limitations, such as ignoring the time value of money. The discounted payback method, on the other hand, addresses this issue by considering the present value of future cash flows. However, it is important to note that the discounted payback method may still have its own limitations. Therefore, this statement is not entirely correct.

C. The NPV method is appealing to some managers because it produces a dollar amount upon which to base decisions rather than an IRR method. The NPV (Net Present Value) method is a widely used investment appraisal technique that considers the time value of money. It calculates the present value of all expected cash flows (both inflows and outflows) associated with an investment, using a discount rate. The NPV represents the dollar amount by which the present value of cash inflows exceeds the present value of cash outflows. It is generally considered a more comprehensive and theoretically sound method compared to the IRR (Internal Rate of Return) method, which calculates the discount rate that makes the present value of cash inflows equal to the present value of cash outflows. While the IRR provides a percentage rate of return, the NPV provides a dollar amount that helps managers in making investment decisions. Therefore, this statement is correct.

D. All of the statements are correct. Based on our analysis so far, we have determined that Statement B is not entirely correct. Therefore, we can conclude that this statement is incorrect as well.

E. For independent projects, the decision to accept or reject will always be the same using either the IRR method or the NPV method. Independent projects are those whose cash flows are not affected by the acceptance or rejection of other projects. When evaluating independent projects, the decision to accept or reject will be the same using either the IRR method or the NPV method, given that the projects' cash flows are not interrelated. Both methods provide a consistent ranking of projects based on their profitability. Therefore, this statement is correct.

In summary, the most correct statement among the options provided is:

C. The NPV method is appealing to some managers because it produces a dollar amount upon which to base decisions rather than an IRR method.

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