Internal rate of return (IRR) and net present value (NPV) methods:
A) generally arrive at the same accept/reject decisions
B) are less sophisticated than the payback period
C) cannot make use of the same cash flows
D) can be substituted for by the payback period

Question

Quizplus · Accepted Answer

IRR and NPV methods generally arrive at the same accept/reject decisions, as they both take into account the time value of money and are based on discounted cash flow analysis. In contrast, the payback period is a less sophisticated method that only looks at the length of time it takes to recover the initial investment, without considering the timing or amount of cash flows beyond that point. While IRR and NPV can differ in the case of non-conventional cash flows with multiple sign changes, they can still be used to make meaningful investment decisions in most cases.

Internal Rate of Return (IRR) and Net Present Value (NPV)