When We Assume in Our Calculations for Capital Budgeting Decisions

Multiple Choice

When we assume in our calculations for capital budgeting decisions that all cash flows occur at the end of individual years during the life of an investment project when, in fact, they flow more or less continuously during those years, which of the following statements is true?

A) The internal rate of return (IRR) of the project will likely be overstated.
B) The net present value (NPV) of the project will likely be overstated.
C) Inconsistent errors will exist in either NPV or IRR.
D) The stated (i.e., calculated) net present value (NPV) of the project will likely be understated.
E) The use of DCF models will produce erratic results.