The elements that cause problems with the use of the IRR in projects that are timing and scale problems.
IRR is a short form for the internal rate of return. The internal rate of return is a technique used in capital budgeting method to determine the profitability of a project.
The internal rate of return of a project is the discount rate that equates the after-tax cash flows from an investment to the amount invested in the project.
A project may have more than one internal rate of return if the negative cash flow does not occur at the beginning of the project. This is referred to as timing problem. Also, IRR is not affected by the scale of the cash flows.
Advantages of the internal rate of return are that it considers the time value of the cash flows and it uses all of the cash flows that would be generated from the project to determine its profitability.
Here are the options:
A. the discount rate and scale problems.
B. timing and scale problems.
C. the discount rate and timing problems.
D. scale and reversing flow problems.
E. timing and reversing flow problems
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