Which of the following statements is CORRECT?
A) 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.
B) One advantage of the NPV over the IRR is that NPV assumes that cash flows will be reinvested at the WACC,whereas IRR assumes that cash flows are reinvested at the IRR.The NPV assumption is generally more appropriate.
C) 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.
D) One advantage of the NPV over the MIRR method is that NPV discounts cash flows whereas the MIRR is based on undiscounted cash flows.
E) Since cash flows under the IRR and MIRR are both discounted at the same rate (the WACC),these two methods always rank mutually exclusive projects in the same order.

Question

Quizplus · Accepted Answer

Statement b is correct,and the others are false.Cash flows from a project can be used to replace funds that would be raised in the market at the WACC,so the WACC is the opportunity cost for reinvested cash flows.Since the NPV assumes reinvestment at the WACC while the IRR assumes reinvestment at the IRR,NPV is generally the better method.

Which of the Following Statements Is CORRECT