Which of the Following Statements Is CORRECT

question 52

Multiple Choice

Which of the following statements is CORRECT?

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

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Definitions:

Risk-free Rate

The theoretical return on investment with no risk of financial loss, often represented by the yield on government securities.

Exchange Rate

The price of one country's currency in terms of another, essential for currency exchange and international trade.

Inflation Rate

The speed at which the overall price level of goods and services increases, leading to a decrease in buying power.

Risk-free Rate

The expected return from an investment that carries no risk of losing money, commonly linked to government bonds.