NPV Differs from IRR

question 53

Multiple Choice

NPV differs from IRR:

• A) NPV measures profitability in absolute terms, whereas the IRR method measures profitability in relative terms.
• B) IRR should be used for choosing among competing, mutually exclusive projects.
• C) NPV considers the time value of money and IRR does not.
• D) Both NPV and IRR will generate the same decisions.

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Definitions:

Present Value

The contemporary valuation of a sum of money to be received in the future or ongoing cash flows, using a specific return rate.

Sales Revenue

The total amount of money received by a company from its sales of goods or services, before any expenses are subtracted.

Premium On Bonds Payable

The amount by which the selling price of a bond exceeds its face value, representing an additional cost to the issuer over the bond’s life.

Unearned Revenue

Money received by an entity for a service or product that has yet to be provided or delivered.