Which of the following are merits of Internal Rate of Return Method of Capital Budgeting? A. Consider…
The Internal Rate of Return (IRR) method considers all cash flows over a project's life (A), is generally consistent with the shareholder wealth maximization principle (C),…
Choose your answer
Which of the following are merits of Internal Rate of Return Method of Capital Budgeting?
A. Consider all cash flows
B. Satisfies the value additivity principle
C. Generally consistent with wealth maximization principle
D. It considers the time value of money
E. It never fails to indicate correct choice between mutually exclusive projects.
Answer and explanation
Correct answer D
The Internal Rate of Return (IRR) method considers all cash flows over a project's life (A), is generally consistent with the shareholder wealth maximization principle (C), and accounts for the time value of money (D). Unlike NPV, IRR does not satisfy the value additivity principle (B) and can give conflicting rankings for mutually exclusive projects (E).
Practice for these exams
-
UGC NET Management