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Which of the following best describes the reason for choosing the NPV rule over the IRR rule when dealing with mutually exclusive projects?

A. NPV rankings are affected by external interest rates or discount rates..

B. The reinvestment rates used by NPV are more conservative and therefore are economically more relevant.

C. IRR ranking assumes reinvestment at opportunity cost of capital that isless realistic and economically less relevant.

Project Finance Accounting Cash Flow Forecasting Financial Systems Feasibility Studies
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Question added by Shahbaz Hayder , Group Head of Finance , Sharif Group of Companies
Date Posted: 2015/07/08
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Saurabh Aggarwal
by Saurabh Aggarwal , Associate Manager , Ernst & Young LLP

Correct answer is option (B). 

Shazia Anees
by Shazia Anees , Assistant Manager Finance , Arham Trading Company

A. NPV rankings are affected by external interest rates or discount rates.

Zehab Osman
by Zehab Osman , Accountant , Aldar Consultancy Co.

A-----------------------------------------------------

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