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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Business

Grace Cannon

31 March, 09:51

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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Demetrius · Answer 1

Answer: C. implicitly assumes that the company is able to reinvest cash flows from the project at the internal rate of return.

Explanation:

The Internal Rate of Return which whilst useful a popular in calculting project returns because of its simplicity, has the implicit disadvantage of assuming that projects will be reinvested at the Internal Rate of Return.

Internal Rates of Returns are often very unrealistic to abide by when it comes to reinvestment because they are quite high and more often than not, finding a project with such a high return rate is rare.