Which of the following statements is most correct?
A) The IRR method is appealing to some managers because it produces a rate of return upon which to base decisions rather than a dollar amount like the NPV method.
B) The discounted payback method solves all the problems associated with the payback method.
C) For independent projects, the decision to accept or reject will always be the same using either the IRR method or the NPV method.
D) All of the statements above are correct.
E) Statements a and c are correct.

Question

Quizplus · Accepted Answer

Statement A is correct because the IRR method calculates the percentage return on investment, which can be compared to a required rate of return to determine whether a project is acceptable or not, while the NPV method calculates the dollar amount of a project's profitability. Statement C is true because independent projects' cash flows aren't dependent on one another; thus, the decision criteria for IRR and NPV will provide the same outcome. Statement B is untrue because while the discounted payback method considers the time value of money, it still fails to consider cash flows beyond the payback period, making it an incomplete measure of profitability. Hence, the correct option is E.

Which of the Following Statements Is Most Correct