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:

Income

Financial gains received from work or investments, usually on a consistent basis.

Demand

The quantity of a good or service consumers are willing and able to purchase at a given price level.

Curds

The coagulated part of milk separated from the whey during the process of making cheese or paneer.

Utility Function

(rephrased) is an economic model illustrating how different combinations of goods or services provide varying levels of happiness or satisfaction to an individual.