Which of the following statements is CORRECT?
A) The IRR method can never be subject to the multiple IRR problem, while the MIRR method can be.
B) One reason some people prefer the MIRR to the regular IRR is that the MIRR is based on a generally more reasonable reinvestment rate assumption.
C) The higher the cost of capital, the shorter the discounted payback period.
D) The MIRR method assumes that cash flows are reinvested at the crossover rate.
E) The MIRR and NPV decision criteria can never conflict.

Question

Quizplus · Accepted Answer

The MIRR method assumes a more reasonable reinvestment rate assumption by assuming that cash inflows are reinvested at the cost of capital rather than the IRR. This can make it a preferred method over the regular IRR. The other statements are not correct. A is incorrect because the MIRR method can also suffer from the multiple IRR problem. C is incorrect because the higher the cost of capital, the longer the discounted payback period. D is incorrect because the MIRR method assumes cash flows are reinvested at the cost of capital, not the crossover rate. E is incorrect because the MIRR and NPV decision criteria can conflict when evaluating mutually exclusive projects.

Which of the Following Statements Is CORRECT