Why Is the Internal Rate of Return (IRR)inadequate When Comparing

question 40

Essay

Why is the internal rate of return (IRR)inadequate when comparing mutually exclusive investments with different timing of the cash flows?

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Definitions:

Insurance Policy

A legal contract between an insurer and the insured, outlining the terms, coverages, premiums, and conditions under which the insurer agrees to compensate the insured.

Adjusting Entry

A journal entry made at the end of an accounting period to allocate revenues and expenses to the period in which they actually occurred.

Prepaid Insurance

Insurance premiums paid in advance for coverage that extends into future accounting periods.

Goniometer

A protractor device that measures range of motion.