For competing projects, net present value is preferred to internal rate of return because a. maximizing IRR
Question:
For competing projects, net present value is preferred to internal rate of return because
a. maximizing IRR may not maximize the wealth of the owners.
b. in the final analysis, total dollars earned, not relative profitability, are what count.
c. choosing the project with the largest NPV maximizes the wealth of the shareholders.
d. assuming that cash flows are reinvested at the required rate of return is more realistic than assuming that cash flows are reinvested at the computed IRR.
e. of all of the above.
Step by Step Answer:
The correct answer is c choosing the project with the largest NPV maximizes the wealth of the shareh...View the full answer
Cornerstones of Managerial Accounting
ISBN: 978-0324660135
3rd Edition
Authors: Mowen, Hansen, Heitger
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Internal rate of return is a method of calculating an investment’s rate of return. The term internal refers to the fact that the calculation excludes external factors, such as the risk-free rate, inflation, the cost of capital, or financial risk.
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