Given two projects with the same total (i.e., project lifetime) cash flow returns (CFRs), the internal rate of return (IRR) method of capital budgeting would favor a proposal having yearly CFRs that were:
A) Even.
B) Uneven.
C) Heavier towards the end of a proposal's life.
D) Heavier towards the beginning of a proposal's life.
E) Heavier towards the middle of a proposal's life.

Question

Quizplus · Accepted Answer

The IRR method assumes that cash flows from a project are reinvested at the project's internal rate of return. Projects with higher early CFRs allow the project to earn more interest and grow more quickly. Therefore, projects with heavier cash flows at the beginning of their life (i.e., Year 1, Year 2) will have a higher IRR than projects that have heavier cash flows at the end of their life (i.e., Year 5, Year 6).

Given Two Projects with the Same Total (I