4 Other influential factors include a The risk linked with a given proposal may prompt management to judge it more or less attractive than other proposals that promise a comparable internal rate of return. b Future investment opportunities may affect the current relative attractiveness of alternative proposals. For example, if management expects that, 5 years hence, the best available alternatives will bring less than 20%, Project D (which promises an internal rate of return of 20.7% for 9 years) maybe preferable to Project C (which promises 22.1% for 5 years. However, if future opportunities are expected to bring equal or higher internal rates of return, a shorter-lived project maybe more attractive, even though a longer-lived project may yield a higher rate of return. Thus, if a choice must be made now between E and F, Project F (12.0% for 4 years) maybe chosen instead of Project E (12.6%, but it locks in capital for 10 years and necessitates a much larger investment.
