When evaluating projects using internal rate of return,
A) projects having higher early-year cash flows tend to be preferred at higher discount rates.
B) projects having higher early-year cash flows tend to be preferred at lower discount rates.
C) the discount rate and magnitude of cash flows do not affect internal rate of return.
D) projects having lower early-year cash flows tend to be preferred at higher discount rates.

Question

Quizplus · Accepted Answer

Projects with higher early-year cash flows are preferred at higher discount rates because the present value of these cash flows is less affected by the discounting process, making them more valuable when the discount rate is high.

When Evaluating Projects Using Internal Rate of Return