Which capital investment evaluation technique is described by the following characteristics? (1) Easy to understand and communicate; (2) May result in multiple answers; (3) May lead to incorrect decisions when applied to mutually exclusive investments.
A) NPV.
B) IRR.
C) AAR.
D) Payback period.
E) Discounted payback.

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) method is known for being easy to understand and communicate, but it can result in multiple IRRs for projects with non-conventional cash flows and may lead to incorrect decisions when comparing mutually exclusive investments due to its reliance on the project's rate of return rather than the absolute amount of returns.

Which Capital Investment Evaluation Technique Is Described by the Following