One Weakness of the Internal Rate of Return Approach Is

question 57

Multiple Choice

One weakness of the internal rate of return approach is that:

• A)it does not directly consider the timing of the cash flows from a project.
• B)it fails to provide a straightforward decision rule.
• C)it implicitly assumes that the firm is able to reinvest the interim cash flows from a project at the firm's cost of capital.
• D)None of the above

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Definitions:

Equitable

Characterized by fairness and impartiality; ensuring just treatment or distribution of resources without favoritism or discrimination.

Externalities

Economic side effects or by-products that affect an uninvolved third party; can be either positive or negative.

Pareto Efficient

A circumstance in resource distribution where any improvement for one individual means a disadvantage for at least another.

Underprivileged Youth

Young individuals who lack the social, economic, and educational advantages of their peers.