Which of the following is/are merits of IRR criteria ? a. Provides multiple IRRs for mixed NCFs. b. It…
The merits are b and c: IRR is computed without selecting an external discount rate and recognises the time value of money. Multiple IRRs for mixed-sign net cash flows are a…
Choose your answer
Which of the following is/are merits of IRR criteria ?
a. Provides multiple IRRs for mixed NCFs.
b. It is independent of discount rate.
c. It considers time value of money.
Answer and explanation
Correct answer D
The merits are b and c: IRR is computed without selecting an external discount rate and recognises the time value of money. Multiple IRRs for mixed-sign net cash flows are a difficulty rather than an advantage. A required return is still needed when using the calculated IRR to accept or reject an investment.
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Karnataka SET (KSET)