When the Internal Rate of Return (IRR) Method and the Net

question 33

Multiple Choice

When the internal rate of return (IRR) method and the net present value (NPV) method do not yield the same recommendation for the same investment project, the project-selection decision should normally be based on:

• A) IRR, because all reinvestment of funds occurs at the rate of the cost of capital and because it takes into consideration the relative size of the initial investment.
• B) NPV, because it takes into consideration the relative size of the initial investment.
• C) IRR, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
• D) NPV, because all reinvestment of funds occurs at the discount rate that will make the NPV of the project equal to zero.
• E) IRR, because all reinvestment of funds occurs at the rate the project generates and because it takes into consideration the relative size of the initial investment.

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Definitions:

Corporate Strategy

A comprehensive plan outlining business objectives and the actions required to achieve them, guiding the overall direction of a company and its decision-making.

International Strategy

A plan that guides how a company conducts business across international borders, enhancing global presence and competitiveness.

Environmental Changes

Pertains to alterations in the external surroundings that impact organizations, including ecological, regulatory, and technological shifts.

Emergent Strategy

A strategy that evolves over time in an organization, often as a response to unexpected opportunities and challenges, rather than being planned from the start.