Which of the following statements about the internal rate of return (IRR)is true?
A) It has the most conservative and realistic reinvestment assumption.
B) It never gives conflicting answers.
C) It fully considers the time value of money.
D) It is greater than the modified internal rate of return if the discount rate is higher than the IRR.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) fully considers the time value of money and is a more accurate measure of performance than the modified internal rate of return (MIRR). Option A is incorrect because the IRR assumes the reinvestment rate of cash flows is equal to the IRR, which can be an unrealistic assumption. Option B is incorrect because the IRR can give conflicting answers if there is non-conventional cash flows (i.e., cash flows that alternate between positive and negative). Option D is incorrect because the IRR is lower than the MIRR if the discount rate is higher than the IRR.

Which of the Following Statements About the Internal Rate of Return