Explanation

ROI (Return On Investment) is a financial metric that calculates the return or profit generated by an investment.

It expressed as a percentage of the original investment amount.

It helps evaluate the performance and profitability of an investment or project.

Explanation

IRR considers the time value of money, while ROI does not.

This making IRR a more accurate measure of profitability for investments with cash flows over time.

IRR and ROI both measure profitability.

Explanation

IRR's main criticism is that it assumes reinvestment at the IRR rate.

It may be unrealistic, leading to overestimation of returns.

This making it a less reliable evaluation metric.

Explanation

IRR is ideal for projects with varying cash flows.

As it considers the timing and amount of cash inflows and outflows.

It providing a comprehensive picture of profitability.

Explanation

Tax rate does not affect IRR.

As IRR is a pre-tax measure of a project's profitability.

Explanation

IRR is preferred over NPV for some decisions.

Because it's easier to understand and provides a clear rate of return.

This making it more intuitive for decision-makers.

Explanation

The discount rate in IRR converts cash flows to present value.

It allowing for a comparison of the project's value in today's dollars.

It helps to calculate the present value of future cash flows.

Explanation

If future cash flows are underestimated, IRR decreases.

As actual returns would be higher.

This making the investment more attractive.

But resulting in a lower calculated IRR.

Explanation

In IRR, 'internal' means the project's internal cash flows equal the initial investment.

It measuring internal profitability.

It excluding external factors like market returns.

Explanation

IRR provides an objective profitability measure.

It enabling easy project comparisons and evaluations.

It considering time value of money for a comprehensive financial picture.