Net Present Value Is Preferred to Internal Rate of Return

question 86

Multiple Choice

Net present value is preferred to internal rate of return for capital budgeting decisions because

• A) the internal rate of return does not allow you to determine if the project is acceptable.
• B) the net present value is the only method that allows you to determine which independent project is acceptable.
• C) the net present value allows you to compare mutually exclusive projects.
• D) the internal rate of return for a project is different for each firm.
• E) NPV contains information about a projects "safety margin" which is not inherent in IRR.

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Definitions:

Distributional Errors

Mistakes in the allocation or distribution of resources or data that can lead to skewed results or inefficiencies.

Performance Appraisals

A systematic evaluation of an employee's job performance and productivity in relation to established criteria and organizational objectives.

Contrast Errors

A type of evaluation error that occurs when an employee's assessment is based on a comparison with another employee rather than on individual performance standards.

Behaviorally Anchored Rating Scale

A method used in performance appraisal that links specific behavioral patterns with specific performance ratings to ensure objectivity and fairness.