A Weakness of the Internal Rate of Return Method for Screening

question 109

Multiple Choice

A weakness of the internal rate of return method for screening investment projects is that it:

• A) does not consider the time value of money.
• B) implicitly assumes that the company is able to reinvest cash flows from the project at the company's discount rate.
• C) implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.
• D) does not take into account all of the cash flows from a project.

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Definitions:

Finished Goods Inventories

Products that have completed the manufacturing process but have not yet been sold to customers.

Direct Labor Costs

The wages paid to workers directly involved in the production of goods or services.

Cash Disbursements

Payments made by a business, including expenses, debt payments, and purchases of assets.

Manufacturing Overhead

Indirect factory-related costs that are incurred when a product is manufactured.