Which of the followings may lead to the wrong decision if IRR is used as the...

Which of the followings may lead to the wrong decision if IRR is used as the investment decision criteria?

		When dealing with mutually exclusive projects.
		IRR never leads to the wrong decision.
		When dealing with independent projects with conventional cash flow pattern.
		When dealing with small independent projects
		When dealing with very large independent projects

Solutions

Expert Solution

When dealing with mutually exclusive projects.

When dealing with mutually exclusive projects, analysis based on IRR can lead to wrong decision. The project having gerater NPV should be accepted. When analysing mutually exclusive projects, the project having higher NPV can have a higher IRR. If we choose the project based on IRR , it can lead to wrong decision as teh project with lower NPV may be accepted.

jeff jeffy answered 2 years ago

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