The internal rate of return (IRR) is often preferred by managers over the net present value (NPV) because the IRR:
A) Is more reliable given unconventional cash flows.
B) Is the discount rate that maximizes net profits.
C) Is contingent upon the current market rates of return.
D) Reveals the discount rate that maximizes the net present value.
E) Is expressed as a rate while the NPV is expressed in dollar terms.

Question

Quizplus · Accepted Answer

The IRR is preferred by some managers over the NPV because it provides a rate of return, making it easier to compare with the company's required rate of return or other investment opportunities. Unlike NPV, which is expressed in dollar terms, IRR is a percentage rate that indicates the efficiency, quality, or yield of an investment. This characteristic makes it more intuitive for decision-making.

The Internal Rate of Return (IRR) Is Often Preferred by Managers