Question

A manager will prefer the IRR rule over the NPV rule if the manager:

A) Prefers to talk in terms of rates of return.
B) Can accurately forecast future cash flows.
C) Dislikes the discounted payback analysis.
D) Also prefers use of payback analysis.
E) Is considering mutually exclusive projects

Answer 1

The manager will prefer the IRR rule if they prefer to talk in terms of rates of return, as it allows for easy comparison and evaluation of projects based on profitability. Option A

Step-by-step explanation:

The manager will prefer the IRR (Internal Rate of Return) rule over the NPV (Net Present Value) rule if the manager prefers to talk in terms of rates of return. IRR calculates the rate of return that a project will generate, while NPV calculates the present value of cash flows. By focusing on rates of return, the manager can compare and evaluate projects more easily based on their profitability.

Example: If a manager is considering two investment projects, A and B, and project A has an IRR of 20% while project B has an IRR of 15%, the manager can conclude that project A is expected to generate a higher rate of return and may prefer it over project B. Option A