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.

---

Definitions:

Preconventional Level

The first stage in Kohlberg's theory of moral development, where moral reasoning is based primarily on the consequences of actions and on the benefits for oneself.

Moral Development

The growth of an individual's understanding of the principles of right and wrong and the ability to apply these principles.

Preconventional Level

The first level of moral thinking in Kohlberg's theory, where moral reasoning is based primarily on external consequences to the individual.

Subsequent Punishment

is a behavior modification technique where a negative consequence follows an undesirable or unwanted behavior, intended to decrease its future occurrences.