Which of the following statements about comparing the techniques of net present value (NPV) and internal rate of return (IRR) is (are) correct?
I. The net present value assumes that all cash flows are reinvested at the cost of capital and is therefore realistic.
II. The internal rate of return is stated as a percent and is therefore easy to communicate to decision-makers who may not understand the fine points of finance.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements I and II are correct.
D) Neither statement I nor II is correct.

Question

Which of the following statements about comparing the techniques of net present value (NPV) and internal rate of return (IRR) is (are) correct? 
I. The net present value assumes that all cash flows are reinvested at the cost of capital and is therefore realistic.
II. The internal rate of return is stated as a percent and is therefore easy to communicate to decision-makers who may not understand the fine points of finance.
A) Only statement I is correct.
B) Only statement II is correct.
C) Both statements I and II are correct.
D) Neither statement I nor II is correct.

Quizplus · Accepted Answer

Statement I is correct because NPV assumes reinvestment of cash flows at the cost of capital which is a realistic assumption. 
Statement II is also correct because IRR is easy to communicate to decision-makers since it is expressed as a percentage.

Which of the Following Statements About Comparing the Techniques of Net