- CFA Exams
- CFA Exam: Level I 2021
- Study Session 10. Corporate Finance (1)
- Reading 32. Capital Budgeting
- Subject 5. Comparison of the NPV and IRR Methods

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**CFA Practice Question**

Which of the following statements is false?

B. The IRR method indicates accepting any investment project that has an internal rate of return greater than a firm's cost of capital.

C. The NPV method and IRR method yield correct decisions when cash flows are non-conventional.

D. The NPV method and MIRR method yield correct decisions when cash flows are non-conventional.

A. The NPV method indicates accepting any investment project with a positive NPV.

B. The IRR method indicates accepting any investment project that has an internal rate of return greater than a firm's cost of capital.

C. The NPV method and IRR method yield correct decisions when cash flows are non-conventional.

D. The NPV method and MIRR method yield correct decisions when cash flows are non-conventional.

Correct Answer: C

The IRR method can lead to a different and incorrect decision when cash flows are non-conventional.

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**User Contributed Comments**
12

User |
Comment |
---|---|

kalps |
Surely B is wrong, the IRR must be greater than CoC for a project to be accepted |

morpheus918 |
Read it again. That's what B says. |

jaan |
B is right... read it again its says IRR > CoC |

mtcfa |
B is 100% right. IRR is the rate where NPV = 0. If the cost of capital is less then the IRR, NPV is positive (i.e. the discounting effect is not as great). |

Rotigga |
MIRR method assumes that cashflows from all projects are reinvested at the cost of capital instead of IRR. |

neenalisa |
Why's the answer not D?? |

czar |
yes, could someone please help explain, why not D? thanks! |

loisliu88 |
can anyone tell me what is a MIRR. didn't find it. thanks |

loisliu88 |
well, give a guess. is it Multiple IRR? |

LONG |
MIRR: Modified Internal Rate of Return. for Reinvestment Rate of the cash inflow |

Speer |
D is a correct statement because MIRR takes into considaration multiple cash flows-it doesnt change like IRR- and gives the same result as NPV. |

ashish100 |
"investopedia.com" ladies and gentlemen. this is the cfa god damn it. guesses ruin lives out here |