Internal rate of return is preferable to net present value because IRR employs a weighted average cost of capital discount rate that reflects potential reinvestment.

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) does not use a weighted average cost of capital (WACC) as its discount rate; instead, it calculates the rate at which the net present value of cash flows equals zero, without explicitly considering the cost of capital or reinvestment rates.

Internal Rate of Return Is Preferable to Net Present Value