Which statement regarding the IRR method is correct?
A)One defect of the IRR method is that it does not take account of cash flows over a project's full life.
B)One defect of the IRR method is that it does not take account of the time value of money.
C)One defect of the IRR method is that it does not take account of the cost of capital.
D)One defect of the IRR method is that it does not assume that the cash flows to be received from a project can be reinvested at a rate other than the IRR itself.

Question

Quizplus · Accepted Answer

The IRR method assumes that all cash flows generated by the project can be reinvested at the internal rate of return itself, which may not always be realistic or achievable in practice. This is a known limitation of the IRR method.

Which Statement Regarding the IRR Method Is Correct