In comparing the techniques of net present value and internal rate of return:
A)The npv and irr techniques will generate the same accept-reject decision provided the projects have conventional cash flows.
B)The differences between the underlying assumptions of npv and irr can cause them to rank projects differently.
C)Both a and b
D)Neither a nor b

Question

Quizplus · Accepted Answer

Option A is correct because if a project has conventional cash flows, where there is an initial cash outflow followed by a series of cash inflows, the NPV and IRR techniques will generate the same accept/reject decision. 
Option B is also correct because the NPV assumes that cash flows are reinvested at the cost of capital, while the IRR assumes all cash flows are reinvested at the IRR. Therefore, when comparing projects with different cash flow patterns or investment sizes, NPV and IRR can lead to different project rankings.

In Comparing the Techniques of Net Present Value and Internal