The NPV Method Is the Preferred Method Over IRR for Selecting

question 78

Multiple Choice

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

---

Definitions:

Lender of Last Resort

An institution, usually a country's central bank, that offers loans to banks or other eligible institutions that are experiencing financial difficulty or are deemed at risk of failure.

Financial Institutions

Financial Institutions are organizations such as banks, credit unions, and insurance companies that provide a wide range of financial services including deposits, loans, investments, and currency exchange.

Federal Funds Rate

The borrowing cost at which financial institutions lend and borrow federal funds (reserves at Federal Reserve Banks) from each other overnight.

Interest Rate

Interest rate is the proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.