Which of the following statements is correct regarding the NPV profile?
A) The IRR appears as the intersection of the NPV profile with the x-axis.
B) The IRR appears at the crossover point or where the two profiles intersect.
C) NPV profiles for independent projects with normal cash flows will intersect.
D) All of these choices are correct.

Question

Quizplus · Accepted Answer

The IRR (Internal Rate of Return) is the discount rate at which the net present value (NPV) of all the cash flows (both positive and negative) from a project or investment equals zero. Therefore, on an NPV profile, which plots the NPV of a project against various discount rates, the IRR is found where the profile crosses the x-axis. This is because at the IRR, the NPV is zero. Choices B and C are incorrect as they describe situations that are not universally true about NPV profiles or IRR.

Which of the Following Statements Is Correct Regarding the NPV