Question

When comparing two projects, can the Internal Rate of Return (IRR) alone provide a comprehensive assessment of their relative attractiveness?

A) Yes, IRR is sufficient for comparing projects
B) No, additional financial metrics should be considered along with IRR
C) IRR is irrelevant in project comparison
D) IRR is only useful for short-term projects

Answer 1

The Internal Rate of Return (IRR) alone cannot provide a comprehensive assessment of the relative attractiveness of two projects. Other financial metrics should be considered alongside IRR to make a more informed decision.

Step-by-step explanation:

The Internal Rate of Return (IRR) alone cannot provide a comprehensive assessment of the relative attractiveness of two projects. While IRR is an important financial metric for project evaluation, it has some limitations and should be considered alongside other financial metrics.

Additional financial metrics that should be considered include the Net Present Value (NPV), Payback Period, and Profitability Index. These metrics provide a more comprehensive understanding of the potential profitability and viability of a project.

For example, two projects may have the same IRR, but one project may have a higher NPV or shorter payback period, making it a more attractive investment.