Which of the following is most FALSE?
A. When the NPVs of projects with unequal lives are directly compared, the mechanics of NPV
assume that when the shorter of the projects ends, its money simply breaks even until the longer
project ends.
B. If the cash flows of a project being evaluated do not include inflation, then if the cost of capital
used for the NPV does not include an inflation premium, the NPV for the project will be correctly
calculated.
C. A sunk cost is an outlay that has already occurred and should not be included as a cash flow in
making decisions regarding the future.
D. When calculating a project's operating cash flows to put on a time line so an NPV can be
calculated, interest expense as a dollar amount should not be subtracted since the cash flows are
going to be discounted using the cost of capital.
E. If a project with normal cash flows has an IRR that is greater than the firm's cost of capital, then
if the firm's cost of capital increases, the project's MIRR and IRR will increase.
