All of the following are true about the NPV and the IRR hurdle investment decision rules, except:
A) If the NPV and the IRR give a different decision recommendation, the IRR is more correct.
B) In most typical real estate circumstances the IRR hurdle rule will give the same investment recommendation as the NPV rule.
C) In comparing two mutually exclusive investments of different scale, the IRR rule can be misleading while the NPV rule will lead to a correct wealth-maximizing decision.
D) The IRR sometimes is indeterminate, whereas a unique NPV can always be calculated.

Question

Quizplus · Accepted Answer

The IRR is not inherently more correct than the NPV when they give different decision recommendations. The NPV is generally considered the more reliable method for evaluating investments because it measures the absolute increase in wealth, while the IRR can be misleading in certain scenarios, such as non-conventional cash flows or mutually exclusive projects of different scales.

All of the Following Are True About the NPV and the IRR