Two key weaknesses of the internal rate of return rule are the:
A)arbitrary determination of a discount rate and failure to consider initial expenditures.
B)failure to correctly analyze mutually exclusive projects and the multiple rate of return problem.
C)failure to consider all cash flows and the multiple rate of return problem.
D)failure to consider initial expenditures and failure to correctly analyze mutually exclusive projects.
E)failure to correctly analyze mutually exclusive projects and the lack of clear-cut decision rule.

Question

Quizplus · Accepted Answer

The internal rate of return rule fails to correctly analyze mutually exclusive projects because it does not consider the time value of money. This can lead to incorrect decisions being made about which project to invest in. The multiple rate of return problem occurs when there are multiple IRRs for a given project. This can make it difficult to determine which IRR is the correct one to use.

Two Key Weaknesses of the Internal Rate of Return Rule