Which of the following statements is MOST correct?
A) If a project's internal rate of return (IRR) exceeds the required return, then the project's net present value (NPV) must be negative.
B) If Project A has a higher IRR than Project B, then Project A must also have a higher NPV.
C) The IRR calculation implicitly assumes that all cash flows are reinvested at a rate of return equal to the IRR.
D) A project with a NPV = 0 is not acceptable.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) calculation assumes that all cash flows are reinvested at a rate of return equal to the IRR. This is not necessarily the case with the net present value (NPV) calculation. Therefore, statement C is the most correct. Statements A and B are incorrect because having a positive IRR and a positive NPV can both be indicators of a profitable project. Statement D is also incorrect because a project with an NPV of zero may still be acceptable, as long as it meets the minimum return requirements of the organization.

Which of the Following Statements Is MOST Correct