IRR calculations are biased because they assume that intra- project cash flows can be invested at a particular rate of return. What is that particular rate?
A) IRR
B) Bank rate
C) The real rate of return
D) Discounted bank rate

Question

Quizplus · Accepted Answer

The particular rate of return assumed in IRR calculations is the IRR itself. This means that the IRR assumes that all cash flows generated by the project can be reinvested at the same rate of return as the project itself, which may not be realistic. This assumption can lead to overestimating the true profitability of a project.

IRR Calculations Are Biased Because They Assume That Intra- Project