ETEC Assessment Practice Test & Exam Prep | Saudi Arabia

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Which statement best describes the relationship between Internal Rate of Return (IRR) and Net Present Value (NPV) for a standard investment project with conventional cash flows?

If the cost of capital equals the IRR, the project's NPV is zero. If the cost of capital is greater than the IRR, the project's NPV is positive. The IRR calculation assumes cash flows are reinvested at the firm's cost of capital. NPV and IRR always yield conflicting accept/reject decisions for independent projects.

Correct Answer:

If the cost of capital equals the IRR, the project's NPV is zero.

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