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Sir I have watched the lecture but actually I do not understand the following question which says that which of the following statement is not weakness of IRR in appraising investments
1) It ignores time value of money
2) There can be several IRRs for same investment
3) It is dependant on cost of capital
4) It cannot reliably be used as a basis for choosing between investments
Correct ans is 2 and 4.
Here do we have to identify the advantage of IRR?
Like we know that IRR considers time value of money, there can be several IRRs in case of non convnetional cashflows, it does not depend on cost of capital, it can be reliably used a basis for choosing between investment. I know all these things but still I am unable to understand that why option 2 and 4 are correct answer and why option 1 and 3 are wrong. Can you please clarify me
Even though there can be multiple IRR’s, if we draw the graph we can still see whether or not an investment gives a positive NPV at the cost of capital and therefore whether or not to accept it.
It cannot be reliably used to choose between investments, but it can still be used to appraise individual investments.