Which of the following is a major limitation of using the internal rate of return as a tool in capital budgeting?

Question

Quizplus · Accepted Answer

The major limitation of using internal rate of return (IRR) in capital budgeting is that it assumes an unrealistic reinvestment rate. IRR assumes that cash inflows are reinvested at the same rate as the IRR, which may not be practical in the real world. This assumption can lead to incorrect or misleading investment decisions. Therefore, option D is the best choice. The other options (ignores the time value of money, does not consider cash flows, and does not use accounting numbers) are not accurate limitations of IRR.

Which of the Following Is a Major Limitation of Using