The relationship between NPV and IRR is such that:
A)both approaches always provide the same ranking of alternative investment projects.
B)the IRR of a project is equal to the firm's cost of capital if the NPV of a project is $0.
C)if the NPV of a project is negative, the IRR must be greater than the cost of capital.
D)none of these

Question

Quizplus · Accepted Answer

The IRR is the discount rate at which the NPV of a project is equal to $0. Therefore, if the NPV of a project is $0, the IRR would be equal to the firm's cost of capital. However, A is not correct because in some cases, NPV and IRR methods may provide different rankings of investment projects. C is also incorrect because the IRR can be less than the cost of capital, even if the NPV is negative.

The Relationship Between NPV and IRR Is Such That