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

Question

Quizplus · Accepted Answer

The internal rate of return method does not consider varying risks over the life of a project, which is a significant limitation of this approach. This limitation can limit the accuracy of IRR as a tool for project analysis and decision-making.

A Limitation of the Internal Rate of Return Method Is