Question
There is debate about the relative merits of net present value (NPV) and internal rate of return (IRR). Which of the following statements about NPV
There is debate about the relative merits of net present value (NPV) and internal rate of return (IRR). Which of the following statements about NPV and IRR is not true?
A. NPV can easily accommodate changes in the companys required rate of return in subsequent periods, but IRR simply ignores changes in annual discount rate
B. For discount rates less than the internal rate of return of the incremental cash flows of two mutually exclusive projects, correct investment advice is given by IRR rather than NPV.
C. IRR suffers from a technical difficulty with non-conventional projects, but with such projects NPV always offers correct investment advice.
D. None of the options
E. NPV makes the reasonable assumption that intermediate cash flows are reinvested at the cost of capital, but IRR unreasonably assumes that such cash flows are reinvested at the internal rate of return.
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