Economics · Financial Management

Assertion: The internal rate of return (IRR) is always a superior method compared to the Net Present Value (NPV) for evaluating mutually exclusive investment projects with varying scales of investment and different timing of cash flows, particularly in a volatile interest rate environment. Reasoning: The IRR method assumes that all intermediate cash flows generated by a project are reinvested at the internal rate of return itself, which provides a more realistic internal efficiency metric for the project than the NPV method which assumes reinvestment at the cost of capital.