The two fatal flaws of the internal rate of return rule

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Reference no: EM131994125

1. The two fatal flaws of the internal rate of return rule are:

a. Arbitrary determination of a discount rate and failure to consider initial expenditures.

b. Arbitrary determination of a discount rate and failure to correctly analyze mutually exclusive investment projects.

c. Arbitrary determination of a discount rate and the multiple rate of return problem.

d. Failure to consider initial expenditures and failure to correctly analyze mutually exclusive investment projects.

e. Failure to correctly analyze mutually exclusive investment projects and the multiple rate of return problem.

2. The internal rate of return (IRR):

I. Rule states that a typical investment project with an IRR that is less than the required rate should be accepted.

II. Is the rate generated solely by the cash flows of an investment.

III. Is the rate that causes the net present value of a project to exactly equal zero.

IV. Can effectively be used to analyze all investment scenarios.

a. I and IV

b. II and III

c. I, II, and III

d. II, III, and IV

e. I, II, III, and IV

Reference no: EM131994125

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