Potential problems in using the IRR as a capital budgeting technique include:

Question

Quizplus · Accepted Answer

The IRR has potential problems in terms of timing, multiple IRRs, and the scale problem. The timing problem arises if cash flows occur at irregular intervals, making it difficult to calculate an accurate IRR. Multiple IRRs occur when there are multiple sign changes in the cash flow stream, leading to multiple IRR solutions. The scale problem arises when cash flows are highly volatile or large, leading to inaccurate calculations of the IRR. Therefore, all of the above options are potential problems in using the IRR as a capital budgeting technique.

Potential Problems in Using the IRR as a Capital Budgeting