A Limitation of the Internal Rate of Return Method Is

question 151

Multiple Choice

A limitation of the internal rate of return method is:

• A) Failure to measure time value of money.
• B) Failure to measure results as a percent.
• C) Failure to consider the payback period.
• D) Failure to reflect changes in risk levels over project life.
• E) Failure to compare dissimilar projects.

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Definitions:

Horizontal Analysis

A financial analysis technique that compares historical financial data over a series of periods to identify trends and growth patterns.

Gross Profit Ratio

A financial metric indicating the proportion of money left from revenues after accounting for the cost of goods sold, presented as a percentage.

Return on Sales Ratio

A financial metric that measures the efficiency of a company in generating profits from its sales by comparing net income to total sales revenue.

Liquidity

The ease with which assets can be converted into cash without significant loss in value, crucial for meeting immediate and short-term obligations.