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When considering internal rate of return (IRR), which statement(s) is/are correct?

When considering internal rate of return (IRR), which statement(s) is/are correct?

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Answer #1

Below are some of the main features of IRR depending upon which we can decide what is corect in respect of IRR:

  • NPV and IRR lead to the same decision for independent projects, which can or cannot be mutually exclusive projects.
  • IRR assumes that cash flows are reinvested at the IRR rate.
  • IRR does not ignore time value of money (the payback period does), and the investor may find multiple IRRs if there are sign changes after time zero (i.e., negative cash flows after time zero)
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