The NPV method is the preferred method over IRR for selecting projects because ________.
A) its result is expressed in dollars and management can make an assessment as to its financial impact on the value of the business
B) it accounts for the time value of money better than IRR
C) it assumes that cash flows are reinvested at the internal rate of return for each and every year of the useful life
D) it gives a project ranking consistent with that of IRR

Question

Quizplus · Accepted Answer

The NPV method is preferred because it provides a direct estimate of the value added to the business by undertaking the project, expressed in dollar terms. This allows management to assess the financial impact of the project on the company's value more straightforwardly than the IRR method, which gives a percentage return without directly indicating the increase in value.

The NPV Method Is the Preferred Method Over IRR for Selecting