Internal Rate of Return and Its Pitfalls

The IRR defined

Multiple rates on unconventional flows

Mutually exclusive projects and scale

Reinvestment and the modified IRR

What exactly is a project's internal rate of return?

A project has an IRR of 16.9 percent and the firm's cost of capital is 10 percent. What does the IRR method say?

A project with cash flows minus, plus, plus, minus can have two IRRs. What causes the pathology?

A small project earns a 40 percent IRR and a large one earns 20 percent, but the large one has the higher NPV. Choosing only one, which should the firm take?

What hidden assumption does the IRR make about interim cash flows?

According to the lesson, what is the professional standard when NPV and IRR disagree?

What three-letter term, followed by the word profile, names the graph of NPV against discount rate whose zero crossings are the IRRs? Write the three letters.

What four-letter abbreviation names the rate that reinvests interim flows at the cost of capital instead of the IRR? Write the abbreviation.

The maximum number of possible IRRs equals the number of what changes in the cash flow sequence? Answer with one word.

The IRR is compared against which rate to decide acceptance? Answer with three words.