The correct answer is: C. same decisions.
Internal rate of return (IRR) and net present value (NPV) are both methods of capital budgeting that can be used to evaluate the profitability of a project. IRR is the rate of return that makes the present value of the project’s cash flows equal to zero. NPV is the sum of the present values of the project’s cash flows.
In general, if a project has an IRR that is greater than the project’s cost of capital, then the project is considered to be profitable. Similarly, if a project has an NPV that is greater than zero, then the project is considered to be profitable.
Therefore, in independent projects evaluation, results of internal rate of return and net present value lead to the same decisions.
Here is a brief explanation of each option:
- Cash flow decision: This is a decision about whether to accept or reject a project based on the project’s cash flows. IRR and NPV are not cash flow decisions.
- Cost decision: This is a decision about how much to spend on a project. IRR and NPV are not cost decisions.
- Same decisions: This is the correct answer. IRR and NPV are both methods of capital budgeting that can be used to evaluate the profitability of a project. In general, if a project has an IRR that is greater than the project’s cost of capital, then the project is considered to be profitable. Similarly, if a project has an NPV that is greater than zero, then the project is considered to be profitable. Therefore, in independent projects evaluation, results of internal rate of return and net present value lead to the same decisions.