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      Question

      Which of the following statements about Internal Rate of

      Return (IRR) is incorrect?
      A IRR is the discount rate at which NPV = 0 Correct Answer Incorrect Answer
      B Projects with IRR higher than cost of capital are acceptable Correct Answer Incorrect Answer
      C IRR always gives the same result as NPV Correct Answer Incorrect Answer
      D IRR assumes reinvestment at the IRR rate Correct Answer Incorrect Answer
      E IRR may not be unique in non-conventional cash flows Correct Answer Incorrect Answer

      Solution

      IRR and NPV may lead to different decisions especially in mutually exclusive projects or with non-conventional cash flows. NPV is more reliable due to reinvestment at cost of capital assumption.

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