The Modified Internal Rate of Return Corrects Which Problem Inherent

question 3

Multiple Choice

The modified internal rate of return corrects which problem inherent in IRR?

• A) Adjustments for scale differences
• B) Difficulty in ranking projects
• C) Differing risk attributes of projects
• D) Incorporates the time value of money
• E) It allows for reinvestment of cash inflows from the project at the firm's cost of capital.

---

Definitions:

Common-Size Balance Sheet

A balance sheet that displays each line item as a percentage of total assets, facilitating comparison with other companies regardless of size.

Percentage of Net Assets

This refers to a metric that calculates what portion of a company’s total net assets is represented by a particular investment or asset class.

Retained Earnings Account

An equity account that represents the accumulated portion of net income left over after dividends are paid to shareholders.

Cumulative Earnings

The total net income of a company since its inception, minus any dividends paid to shareholders.