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What are the shortfalls of relying on the IRR method

What are the shortfalls of relying on the IRR method

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Answer #1

IRR stands for Internal Rate of Return which gives the rate of return that we earn on a project by using discounting cash flow. However there are many shortfalls (disadvantage) for using IRR some of them are below:

- IRR does not consider the future cost.

- IRR does not consider the size of project when it compares.

- Most of people finds easy to understand in value instead of percentage therefore it also makes difficult to understand.

- IRR use one (single) discount rate and ignore the changes in furture.

I hope this clear your doubt.

Feel free to comment if you still have any query or need something else. I'll help asap.

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