A. If the required rate of return used in an NPV calculation is the firm's cost of capital, the calculation of the NPV assumes that the firm is able to reinvest the project's cash flows at the same rate. However, the IRR is not the firm's cost of capital. The IRR may be higher or lower than the firm's required rate of return.
B. The Internal Rate of Return (IRR) is the discount rate at which the Net Present Value (NPV) of a project is zero. As such, it assumes that the cash flows from the project will be reinvested at the same rate. This is a disadvantage, because the cash flows from the project may not be able to be reinvested at the Internal Rate of Return.
C. The Internal Rate of Return does consider the time value of money.
D. The Internal Rate of Return is a straightforward decision criterion. If a project's IRR is greater than the firm's required rate of return, the project is acceptable.
