The internal rate of return
A)is more reliable as a decision making tool than net present value when considering mutually exclusive projects.
B)is the discount rate that makes the net present value of a project equal to one.
C)is easier to apply than net present value when cash flows are unconventional.
D)will provide the same accept/reject decision as NPV when cash flows are conventional and projects are independent.
E)is influenced by daily changes in the market rate of interest.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) and net present value (NPV) methods will provide the same accept/reject decision for a project when the project's cash flows are conventional (i.e., an initial outlay followed by a series of positive cash inflows) and the projects under consideration are independent. This is because both methods are based on the same set of cash flows and aim to assess the profitability of a project, albeit through different mechanisms.

The Internal Rate of Return