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Assertion: a high internal rate of return always indicates a highly attractive project. Reason: the rate measures what the project earns on the capital committed.

  • A.both the assertion and the reason are true and the reason explains the assertion
  • B.both the assertion and the reason are true but the reason does not explain the assertion
  • C.the assertion is true but the reason given for it is false
  • D.the assertion is false although the reason offered is a true statement in itself

Answer: D

The rate does measure the return on committed capital, but a splendid rate on a trivial outlay adds little value, and the figure also rests on reinvestment at that same high rate. Scale and the reinvestment assumption both qualify it.

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