Which of the following statements is CORRECT? Answer One defect of the IRR metho

Question

Which of the following statements is CORRECT? Answer                      

                            
           One defect of the IRR method versus the NPV is that the IRR does not take account of the time value of money.                             
           One defect of the IRR method versus the NPV is that the IRR does not take account of the cost of capital.                             
           One defect of the IRR method versus the NPV is that the IRR values a dollar received today the same as a dollar that will not be received until sometime in the future.                             
           One defect of the IRR method versus the NPV is that the IRR does not take proper account of differences in the sizes of projects.                             
           One defect of the IRR method versus the NPV is that the IRR does not take account of cash flows over a project's full life.

Explanation / Answer

Hi,

Option D is the correct answer.

Explanation:

The calculation of IRR does not give importance to the different in the sizes of the project. All other statements are not correct as IRR does take into account the time value of money, cost of capital and all the cash flows over the life of the project.  

Thanks.

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