medium · Principles of Finance capital-budgeting
Which of the following is a risk of relying purely on the IRR for a project that requires significant interim capital expenditures (future outflows)?
- The project will always show a higher NPV figure than its IRR percentage.
- Multiple IRR roots may exist, leading to a mathematically ambiguous decision.
- The IRR will systematically underestimate the true riskiness of the project's cash flows.
- The IRR cannot be calculated at all if any single Year t cash flow happens to be negative.
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