Question

Which of the following statements is CORRECT?a. One defect of the IRR method versus the NPV is that the IRR does not take account of the time value of money.b. One defect of the IRR method versus the NPV is that the IRR does not take account of the cost of capital.c. One defect of the IRR method versus the NPV is that the IRR values a dollar received today the same as a dollar that will not be received until sometime in the future.d. One defect of the IRR method versus the NPV is that the IRR does not take proper account of differences in the sizes of projects.e. One defect of the IRR method versus the NPV is that the IRR does not take account of cash flows over a project's full life.

Answer 1

Answer:

d. One defect of the IRR method versus the NPV is that the IRR does not take proper account of differences in the sizes of projects.

CORRECT As the project yields over time can differ. This generates that projects with a lower IRR can achieve a higher NPV at lower rates.

There is a crossover point after which a projects NPV are equal and from there the one with higher IRR obtains better NPV

Explanation:

a. One defect of the IRR method versus the NPV is that the IRR does not take account of the time value of money.

FALSE both method consider time value of money

b. One defect of the IRR method versus the NPV is that the IRR does not take account of the cost of capital

FALSE The IRR can be compared against the cost of capital to indicate wether or not a project should be preferable

.c. One defect of the IRR method versus the NPV is that the IRR values a dollar received today the same as a dollar that will not be received until sometime in the future.

FALSE IRR considers the time value of money

e. One defect of the IRR method versus the NPV is that the IRR does not take account of cash flows over a project's full life.

FALSE it considers all the cash flows over the project's full life.