Question

The internal rate of return (IRR) is often preferred by managers over the net present value (NPV) because the IRR:

A) Is more reliable given unconventional cash flows.
B) Is the discount rate that maximizes net profits.
C) Is contingent upon the current market rates of return.
D) Reveals the discount rate that maximizes the net present value.
E) Is expressed as a rate while the NPV is expressed in dollar terms.

Answer 1

The internal rate of return (IRR) is preferred by managers over the net present value (NPV) because it reveals the discount rate that maximizes the net present value.

Step-by-step explanation:

The correct answer is D) Reveals the discount rate that maximizes the net present value.

The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of an investment becomes zero. It is a measure of the profitability of an investment and is often used to compare different investment opportunities.

The IRR is preferred by managers over the NPV because it reveals the discount rate that maximizes the net present value. In other words, it helps managers determine the rate at which the investment will generate the highest return.