The internal rate of return should:
A) Not be used for ranking mutually exclusive projects.
B) Only be applied to small projects.
C) Be relied upon more heavily than the net present value.
D) Always result in the same decision as discounted payback.
E) Lead to correct decisions when comparing mutually exclusive projects.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) should not be used for ranking mutually exclusive projects because it can lead to incorrect decisions if the projects have different scales, cash flow patterns, or durations. The net present value (NPV) method is generally preferred for evaluating and comparing mutually exclusive projects because it directly measures the value added to the firm by undertaking the project.

The Internal Rate of Return Should