Which of the following is incorrect regarding the IRR statistic?
A)For independent projects, IRR will give the same accept/reject decision as NPV.
B)For the IRR statistic to give a different accept/reject decision from NPV, the cash flows must be non-normal and the projects must be mutually exclusive.
C)To solve for the IRR, one can simply solve the NPV formula for the rate that will make the NPV equal to zero.
D)None of these statements are incorrect.

Question

Quizplus · Accepted Answer

Statement B is incorrect because it suggests that the IRR statistic will give a different accept/reject decision from NPV only when the cash flows are non-normal and the projects are mutually exclusive. However, there are other situations where IRR and NPV may give different decisions, such as when there are multiple IRRs or when the cash flows change sign more than once. Statement A is true, as long as the projects do not have significantly different scales or durations. Statement C is also true, as the IRR is the discount rate that makes the NPV equal to zero. Therefore, the answer is B.

Which of the Following Is Incorrect Regarding the IRR Statistic