The internal rate of return:
A) Is the best analytical method to use when comparing mutually exclusive projects.
B) Determines the discount rate which should be used to evaluate a project given current market conditions.
C) Will increase as the initial investment in a project is increased.
D) Is relatively difficult to interpret and explain.
E) Method of analysis can result in multiple rates under certain conditions.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) method can indeed result in multiple rates of return when a project has unconventional cash flows (i.e., cash flow signs change more than once during the life of the project). This can make the interpretation of the IRR less straightforward in such cases.

The Internal Rate of Return