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NEW QUESTION: 1
Is it possible that a project has a payback period of one year, a negative NPV and a positive IRR?
A. No, because a project with a negative NPV has a negative payback period.
B. Yes.
C. No, because a project with a positive IRR has a positive NPV.
Answer: B
Explanation:
If the cumulative cash in one year equals the outlay and additional cash flows are not very large, this scenario is possible. e.g. initial outlay = 100, first year cash flow = 100 and second year cash flow = 5. The required rate of return is 10%. This project would have a payback period of 1 year, an NPV of -4.96 and an IRR of 4.77%.
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Answer: D
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