Which of the Following Is a Weakness of the Internal

question 209

Multiple Choice

Which of the following is a weakness of the internal rate of return (IRR) ?

• A)IRR assumes that the cash inflows from the project are immediately reinvested at the minimum required rate of return.
• B)IRR ignores the time value of money.
• C)IRR assumes that the cash inflows from the project are immediately reinvested at the internal rate of return.
• D)IRR is not a percentage rate, but is expressed in dollars.

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Definitions:

Recessionary Gap

Describes a situation where the real GDP of an economy is less than its potential GDP, indicating underutilized resources and a sluggish economy.

Deflation

A decrease in the general price level of goods and services in an economy over a period of time, potentially leading to increased unemployment and slower economic growth.

Inflation

The pace of ascent in the general pricing for goods and services, eroding the capability to buy.

Expansionary Gap

A situation where the actual output in an economy exceeds the potential output, typically leading to inflation.