The use of either the internal rate of return or the profitability index could lead to incorrect decisions when comparing mutually exclusive investments.

Question

Quizplus · Accepted Answer

Both the internal rate of return (IRR) and the profitability index (PI) can potentially lead to incorrect decisions when comparing mutually exclusive investments because they do not account for differences in scale of investment or the reinvestment of cash flows at the project's own IRR.

The Use of Either the Internal Rate of Return or the Profitability