A weakness of the internal rate of return method for screening investment projects is that it:
A) does not consider the time value of money.
B) implicitly assumes that the company is able to reinvest cash flows from the project at the company's discount rate.
C) implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.
D) does not take into account all of the cash flows from a project.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) method assumes that the cash flows from the project can be reinvested at the IRR itself, which may not be realistic if the IRR is significantly higher than the company's actual reinvestment opportunities.

A Weakness of the Internal Rate of Return Method for Screening