The internal rate of return (IRR) for an investment:
A) Frequently results in positive net present values on attractive projects.
B) Generally is greater than the company's desired rate of return.
C) Ignores the time value of money.
D) May produce different results than the net present value method (NPV) in evaluating projects with different useful lives.
E) Would tend to be reduced if a company used an accelerated method of depreciation for tax purposes.

Question

Quizplus · Accepted Answer

The IRR may produce different results than the NPV method in evaluating projects with different useful lives because the IRR assumes all cash flows are reinvested at the project's calculated rate of return, while the NPV discounts future cash flows back to their present value using the company's cost of capital. This difference can result in conflicting results for projects with different useful lives.

The Internal Rate of Return (IRR) for an Investment