The internal rate of return method of analysis works best for independent projects with conventional cash flows.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) method is most effective for evaluating independent projects that have conventional cash flows, meaning the project starts with an initial outlay followed by a series of positive cash inflows. This is because the IRR method assumes reinvestment at the project's own IRR, and its simplicity and focus on percentage returns make it particularly suitable for comparing independent projects with this cash flow pattern.

The Internal Rate of Return Method of Analysis Works Best