One weakness of the internal rate of return approach is that:
A)it does not directly consider the timing of the cash flows from a project
B)it fails to provide a straightforward decision-making criterion
C)it implicitly assumes that the firm is able to reinvest the interim cash flows from a project at the firm's cost of capital.
D)none of these

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) approach assumes reinvestment at the IRR itself, not at the firm's cost of capital, which is a common misconception. Therefore, none of the given options accurately describe a weakness of the IRR approach.

One Weakness of the Internal Rate of Return Approach Is