Which statement about the relationship between NPV and IRR is true when evaluating a healthcare project?

• A. NPV ignores the time value of money.
• B. IRR is the discount rate at which NPV equals zero.
• C. NPV is the project's internal rate of return.
• D. IRR is the total net cash inflow.

Answer: (B)

The main idea is that the internal rate of return is defined as the discount rate that makes the project’s net present value equal to zero. NPV sums all future cash flows discounted back to their present value and then subtracts the initial investment. When you solve for the discount rate that makes that sum exactly zero, you’ve found the IRR. That’s why this statement is true: IRR is by definition the rate at which NPV equals zero.

Some quick context helps with intuition: if you discount future cash flows at a high rate, the present value of those inflows drops, lowering NPV; if the rate is just right, the inflows balance out the cost so NPV hits zero. NPV, not IRR, is the dollar value added or lost. And IRR is not the total cash inflow, but a rate.

Regarding the other options: discounting future money means NPV does account for the time value of money, so that claim is false. NPV is a dollar value, whereas IRR is a percentage rate, so saying NPV is the internal rate of return mixes up the concept. Finally, IRR is not the total net cash inflow; it’s a rate, while the net cash inflow is a sum of amounts over time.