Which of the following statements is CORRECT?
A) To find the MIRR, we first compound cash flows at the regular IRR to find the TV, and then we discount the TV at the cost of capital to find the PV.
B) The NPV and IRR methods both assume that cash flows can be reinvested at the cost of capital.However, the MIRR method assumes reinvestment at the MIRR itself.
C) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the higher IRR probably has more of its cash flows coming in the later years.
D) If two projects have the same cost, and if their NPV profiles cross in the upper right quadrant, then the project with the lower IRR probably has more of its cash flows coming in the later years.
E) For a project with normal cash flows, any change in the cost of capital will change both the NPV and the IRR.

Question

Quizplus · Accepted Answer

Statement D is correct because when NPV profiles of two projects cross, the one with the lower IRR typically has its cash flows coming in later years, making it more valuable at higher discount rates (which is when the crossing typically occurs). This reflects the time value of money principle, where cash flows received later are worth less today than cash flows received sooner, all else being equal.

Which of the Following Statements Is CORRECT