Which of the Following Statements Is CORRECT

question 24

Multiple Choice

Which of the following statements is CORRECT?

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

---

Definitions:

Current Year

Refers to the ongoing calendar year at any given point in time.

Laspeyres Price Index

A consumer price index used to measure the change over time in the total cost of purchasing a fixed basket of goods and services.

Per Capita Income

The average income earned per person in a particular area or country, calculated by dividing the area's total income by its total population.

Laspeyres Price Index

A price index that measures the change in the price level of a basket of goods and services, using the quantities of the base period as weights.