Which of the following statements regarding the internal rate of return (IRR) is most accurate? The IRR:
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A) |
can lead to multiple IRR rates if the cash flows extend past the payback period. | |
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B) |
and the net present value (NPV) method lead to the same accept/reject decision for independent projects. | |
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C) |
assumes that the reinvestment rate of the cash flows is the cost of capital. | |
NPV and IRR lead to the same decision for independent projects, not necessarily for mutually exclusive projects. IRR assumes that cash flows are reinvested at the IRR rate. IRR does not ignore time value of money (the payback period does), and the investor may find multiple IRRs if there are sign changes after time zero (i.e., negative cash flows after time zero). | 
发表于 2011-3-23 15:46
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