Question

Internal rate of return (IRR) has many uses in corporate finance, from estimating yield to maturity of a bond to capital budgeting. Please mark the only correct use of IRR:

	a.	IRR is useful for capital budgeting because it gives the analyst an upper bound for your estimated cost of capital for the firm below which the NPV is still positive
	b.	When choosing projects, IRR is always right while NPV not always will give you the right answer
	c.	IRR is reliable because it always provides the analyst with only one answer
	d.	IRR rule is accurate for capital budgeting when cash inflows are followed by outflows

Answer 1

Internal Rate of Return Rule States accept the Project If the IRR is more than Project Discount Rate and reject the Project if IRR is less than Project Discount Rate and and at IRR is equal to Project Discount Rate Project will be indifferent. When Comparing Projects if Conflict Exists between IRR and NPV then NPV is the better Criteria to select the Project. In Case of Non Conventional Cash Flows we will get Multiple IRR's.

Answer A