Which of the Following Is a Disadvantage of Using Internal

question 1

Multiple Choice

Which of the following is a disadvantage of using internal rate of return for assessing a project?

• A) It fails to take into account the time value of money and risk.
• B) It cannot be calculated by trial and error.
• C) It discriminates heavily against long-term and risky projects.
• D) It fails to provide concrete financial estimates.

---

Definitions:

Required Rate

The minimum return an investor expects to achieve from an investment, considering its risk level.

External Equity

Funds raised through the sale of company shares in the capital markets, as opposed to internal financing through retained earnings.

Retaining Earnings

The portion of net income that is not distributed to shareholders but is kept by the company to be reinvested in its core business or to pay debt.

Flotation Cost

The total costs associated with issuing new securities, including but not limited to underwriting, legal, and registration fees.