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    NPV and IRR

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    Which of the following is most correct?

    a. The NPV and IRR rules will always lead to the same decision in choosing between mutually exclusive projects, unless one or both of the projects are "non-normal" in the sense of having only one change of sign in the cash flow stream.
    b. The Modified Internal Rate of Return (MIRR) compounds cash outflows at the cost of capital.
    c. Conflicts between NPV and IRR rules arise in choosing between two mutually exclusive projects (that each have normal cash flows) when the cost of capital exceeds the crossover point (that is, the point at which the NPV profiles cross).
    d. The discounted payback method overcomes the problems that the payback method has with cash flows occurring after the payback period.
    e. None of the statements above is correct.

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    Solution Preview

    Which of the following is most correct?

    a. The NPV and IRR rules will always lead to the same decision in choosing between mutually exclusive projects, unless one or both of the projects are "non-normal" in the sense of having only one change of sign in the cash flow stream.

    The NPV and IRR rules will always ...

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    This solution is comprised of a detailed explanation to answer which statement is correct.

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