If a capital budgeting project's cash flows are not normal, the internal rate of return method should be used to make the investment decision.

Question

Quizplus · Accepted Answer

When a capital budgeting project's cash flows are not normal (i.e., they change signs more than once), using the internal rate of return (IRR) method can lead to multiple IRRs or misleading results, making it difficult to make a clear investment decision. Other methods, such as the net present value (NPV) method, are generally considered more reliable in such cases.

If a Capital Budgeting Project's Cash Flows Are Not Normal