The Underlying Cause of Ranking Conflicts Between the NPV and IRR

question 35

Multiple Choice

The underlying cause of ranking conflicts between the NPV and IRR methods is differing

• A) Initial cost.
• B) Reinvestment rate assumption.
• C) Cash flow timing.
• D) Profitability indices.
• E) All of the above comprise the underlying cause of ranking conflicts.

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Definitions:

Depreciation Rate

The percentage rate at which an asset is depreciated across its useful life, impacting how much of its cost is allocated as an expense each year.

Accelerated Depreciation

A method of depreciation in which an asset loses book value at a faster rate than the traditional straight-line method.

Depreciation Expense

The portion of the cost of a tangible fixed asset allocated as an expense to a period, reflecting the usage and wear and tear of the asset.

Asset's Life

The expected duration of time that an asset is considered to be useful for the purposes of a business.