A limitation of the internal rate of return method is that it:
A)Does not consider the time value of money.
B)Measures results in years.
C)Lacks ability to compare dissimilar projects.
D)Ignores varying risks over the life of a project.
E)Measures net income rather than cash flows.

Question

Quizplus · Accepted Answer

The internal rate of return method assumes that all cash flows generated by a project are reinvested at the same rate, which may not be true for projects with varying risk profiles over time. This limitation can lead to incorrect decisions when comparing projects with different risk profiles. The other options listed are not limitations of the internal rate of return method.

A Limitation of the Internal Rate of Return Method Is