The use of the internal rate of return could lead to incorrect decisions in comparing mutually exclusive investments.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) method assumes that cash flows can be reinvested at the project's IRR, which might not be realistic. Additionally, when comparing mutually exclusive projects, the one with the higher IRR might not necessarily have the higher net present value (NPV), leading to potentially incorrect decisions if the IRR is the sole criterion used.

The Use of the Internal Rate of Return Could Lead