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4. Name the cases when the Internal Rate of Return (IRR) is not reliable as an...

4. Name the cases when the Internal Rate of Return (IRR) is not reliable as an investment decision tool.

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Answer #1

IRR is generally measure where the investment is earning grater than its cost of capital or not if the IRR is less than WACC then we reject the project there on. But there are few cases when IRR is not reliable as a investment decision tool:

1. When IRR is greater than other project but its NPV is less than IRR is not a reliable tool.

2. When there is cash outflow at different time then there will be more than one IRR so we can use IRR in that case we will use MIRR.

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