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Hi John,
I’m sorry to bother you again 🙁
I was just doing the mock exam on your website, and I have a query regarding the following question:Which of the following statements is/are NOT a weakness of the IRR?
Options are:
(1) it ignores the time value for money
(2) there can be several IRRs for the same investment
(3) it is dependent on the cost of capital for the company
(4) it cannot reliably be used as a basis for choosing between investmentsI understand
(1) is not a weakness, it’s simply not true
(2) that’s not a weakness – correct answer
(3) is not a weakness, it’s simply not true
(4) here is my problem – (4) it’s correct, but I don’t understand why this is NOT a weakness??Many thanks in advance!!
Jenny(4) is a weakness.
The correct answer should be (1). The IRR does not ignore the time value of money – it is the rate of interest that gives a NPV of zero.
I will check the exam and correct it – thank you for pointing it out 🙂
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