alleryStart learning →Why can the modified internal rate of return not be used to rank projects?
AIt only counts the first year cash
BIt only works for public companies
CIt only applies to leasing decisions
DIt only makes accept or reject calls
Answer & Solution
Correct answer: D. It only makes accept or reject calls
1. The modified measure fixes the reinvestment assumption but gains a limit of its own.
2. It cannot be used to rank projects against one another.
3. It can only be used to make accept-or-reject decisions.
4. For ranking, the profitability index is the tool offered instead.
_Source: OpenStax Principles of Finance (CC BY 4.0), Ch 16 'How Companies Think about Investing', sections 16.1-16.5_
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