When two mutually exclusive projects are considered, the NPV calculations and the IRR calculations may, under certain circumstances, give conflicting recommendations as to which project to accept
The reason for this result is that in the NPV calculation, cash inflows are assumed to be reinvested at the cost of capital, while in the IRR solution, reinvestment takes place at A) the hurdle rate.
B) the accounting rate of return.
C) the prime rate.
D) the project's internal rate of return.
D
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In the presence of asymmetric information, a fixed-fee contract
A) achieves production efficiency. B) can lead to opportunistic behavior on the part of the agent. C) is impossible to write. D) will result in the principal earning all of the profit.
Suppose MRS does not equal MRT for all consumers. In this case, the economic outcome is not fully efficient because:
A) exchange is inefficient. B) the use of inputs in production is inefficient. C) the mix of outputs in inefficient. D) none of the above