This is a conceptual question that does not require any calculation. Consider a project which...
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This is a conceptual question that does not require any calculation. Consider a project which requires an investment today of $100,000, at the end of the next three years (t = 1, 2 and 3) will have a cash flow of $30,000 each year ($30,000 at t = 1, $30,000 at t = 2, and $30,000 at t = 3), and at t = 4 will have a cash flow of $X. The cost of capital is 10% per year. Which of the following statements is true?
1-The NPV method is appropriate to use for all potential values of X, but the IRR method is only appropriate to use if the X is nonnegative (i.e., greater than or equal to zero).
2-The NPV method is appropriate to use for all potential values of X, but the IRR method is only appropriate to use if X is $30,000 or more.
3-Both the NPV method and IRR methods are appropriate to use only if X is nonnegative (i.e., greater than or equal to 0).
4-Both the NPV method and IRR methods are appropriate to use only if X is $30,000 or more.
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