Which one of the following is true for the internal rate of return (IRR) method?
A) It assumes cash proceeds during the life of a project can be reinvested to earn the same rate of return as the weighted-average cost of capital.
B) Depending on the pattern of after-tax cash flows, multiple IRRs for a given proposed investment are possible.
C) IRRs of multiple projects are additive (that is, can be added together).
D) It can be used to make optimal decisions regarding mutually exclusive investment projects.
E) It makes it easy to incorporate multiple costs of capital.

Question

Quizplus · Accepted Answer

Depending on the pattern of after-tax cash flows, multiple IRRs for a given proposed investment are possible. This is a drawback of the IRR method as it makes it difficult to compare investments and can lead to confusion in decision making.

Which One of the Following Is True for the Internal