Which three of the following statements correspond to limitations of the IRR method, when compared with the NPV approach?
A) Limits on the accuracy of rankings
B) IRR does not give percentage results
C) Confusion between investing- type and financing- type decisions
D) The possibility of multiple solutions

Question

Quizplus · Accepted Answer

A: The IRR method can produce inaccurate rankings when comparing projects of different size or when cash flows change sign frequently.

C: The IRR method can be misleading when evaluating financing-type decisions, as it assumes that cash flows are reinvested at the same rate as the project's IRR.

D: The IRR method may produce multiple solutions when there are non-conventional cash flows, which can be confusing and require additional analysis.

B is not a limitation of the IRR method, as it does provide percentage results.

Which Three of the Following Statements Correspond to Limitations of the IRR