Which of the following statements is most correct?
A) If a project's internal rate of return (IRR) exceeds the required return, then the project's net present value (NPV) must be negative.
B) If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
C) The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR.
D) A project with a NPV = 0 is not acceptable.

Question

Quizplus · Accepted Answer

The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR. The other statements are incorrect because a project's IRR can exceed the required return while still having a positive NPV (A), and a project's IRR does not necessarily determine its NPV (B). Option D is also incorrect because a project with NPV = 0 is considered acceptable if the required return is met.

Which of the Following Statements Is Most Correct