Which of the following is a disadvantage of using internal rate of return for assessing a project?
A) It fails to take into account the time value of money and risk.
B) It cannot be calculated by trial and error.
C) It discriminates heavily against long-term and risky projects.
D) It fails to provide concrete financial estimates.

Question

Quizplus · Accepted Answer

Internal rate of return (IRR) has a disadvantage of discriminating against long-term and risky projects because it assumes that cash flows are reinvested at the same rate as the IRR, which may not be feasible in practice. Additionally, IRR also fails to account for the timing of cash flows and the risk inherent in a project. Option A is incorrect because IRR takes the time value of money into account. Option B is incorrect because IRR can be calculated using trial and error or through using a financial calculator. Option D is incorrect because IRR provides financial estimates in terms of the rate of return.

Which of the Following Is a Disadvantage of Using Internal