A manager will prefer the IRR rule over the NPV rule if the manager:
A) Prefers to talk in terms of rates of return.
B) Can accurately forecast future cash ﬂows.
C) Dislikes the discounted payback analysis.
D) Also prefers use of payback analysis.
E) Is considering mutually exclusive projects.

Question

Quizplus · Accepted Answer

The IRR rule is a measure of the rate of return of a project, while the NPV rule measures the difference between the present value of cash inflows and the present value of cash outflows. If a manager prefers to talk in terms of rates of return, then they would prefer the IRR rule. However, if the manager can accurately forecast future cash flows, they may prefer the NPV rule for its ability to provide a value in dollars. The other options of disliking discounted payback analysis, preferring the use of payback analysis, or considering mutually exclusive projects do not directly relate to a preference for the IRR rule over the NPV rule.

A Manager Will Prefer the IRR Rule Over the NPV