A limitation of the internal rate of return method is:
A) Failure to measure time value of money.
B) Failure to measure results as a percent.
C) Failure to consider the payback period.
D) Failure to reflect changes in risk levels over project life.
E) Failure to compare dissimilar projects.

Question

Quizplus · Accepted Answer

The internal rate of return method assumes a constant level of risk over the project's life and does not take into account any changes in risk levels. This limitation makes it difficult to rely solely on IRR as the sole method for evaluating a project's profitability.

A Limitation of the Internal Rate of Return Method Is