Which of the following statements is CORRECT?
A) One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the cost of capital, whereas IRR assumes that cash flows are reinvested at the IRR.The NPV assumption is generally more appropriate.
B) One advantage of the NPV over the MIRR method is that NPV takes account of cash flows over a project's full life whereas MIRR does not.
C) One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.
D) Since cash flows under the IRR and MIRR are both discounted at the same rate (the cost of capital), these two methods always rank mutually exclusive projects in the same order.
E) One advantage of the NPV over the IRR is that NPV takes account of cash flows over a project's full life whereas IRR does not.

Question

Quizplus · Accepted Answer

The statement correctly identifies one advantage of the NPV over the IRR method, which is that NPV assumes that cash flows will be reinvested at the cost of capital, which is generally more appropriate than assuming reinvestment at the IRR. The other statements either compare NPV with the MIRR method or make incorrect statements about the differences between the NPV and IRR methods.

Which of the Following Statements Is CORRECT