Two of the 'workhorses' of capital budgeting are the Net Present Value (NPV) and the Internal Rate of Return (IRR) calculation. In practice, we rely on the NPV calculation to make our decisions; however, the IRR calculation is a useful calculation to employ when we attempt to compare projects. Highlight the three potential pitfalls that Berk and DeMarzo (2020) outline and illustrate with an example how each of these issues would lead managers to make incorrect decisions about accepting a project. Include at least two citations that support your response.

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Three potential pitfalls outlined by Berk and DeMarzo 2020 in using Internal Rate of Return IRR for project evaluation are 1 Multiple IRRs One of the ... View the full answer