Why it\'s true or false 7- In case of conflict, one should always choose the IRR

Question

Why it's true or false

7- In case of conflict, one should always choose the IRR method (over the NPV method) because the IRR is inherently superior to the NPV method.

8- For capital budgeting and cost of capital purposes, the firm should assume that each dollar of capital is obtained in accordance with its target capital structure, which for many firms means partly as debt, partly as preferred stock, and partly common equity.

9- NPV and IRR methods are based on identical assumptions regarding reinvestment rate of future cash flows.

Explanation / Answer

7)

Given statement is TRUE.

NPV technique evaluates the project in the quantitative terms i.e. how is the present value of cash inflows was excess to present value of cash outflows. It is difficult compare and analyzes the projects which have difference in investment terms.

IRR evaluates the project in qualitative terms i.e. implied return from the project. this can be applied to all projects and can be compared to take decisions.

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