Author Question: Perhaps the greatest disadvantage of using the IRR method to evaluate investment opportunities is (Read 36 times)

jace · **on:** Apr 25, 2021

Question 1

Los Angeles Lumber Company (LALC) is considering a project with a cost of $1,000 at Time = 0 and inflows of $300 at the end of Years 1-5. LALC's cost of capital is 10%. What is the project's modified IRR (MIRR)?
◦ 10.0%
◦ 12.9%
◦ 15.2%
◦ 18.3%
◦ 20.7%

Question 2

Perhaps the greatest disadvantage of using the IRR method to evaluate investment opportunities is
◦ dealing with uncertain cash flows from the project.
◦ the assumption that all cash flows from the project will be reinvested at the IRR.
◦ the inability to calculate most IRRs without a computer.
◦ the need to compare IRR with the firm's cost of capital which cannot be estimated precisely.
◦ the fact that the technique does not account for risk.

mjenn52 · **Reply #1 on:** Apr 25, 2021

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