What factor can negatively impact the Internal Rate of Return (IRR) of an investment?

The Internal Rate of Return (IRR) serves as a metric to evaluate the profitability of an investment over time, essentially measuring the discount rate that makes the net present value of all cash flows (both positive and negative) from the investment equal to zero. Delayed receipt of proceeds can have a negative impact on IRR because it prolongs the time until cash inflows are realized, thus increasing the risk and reducing the overall return.

When cash flows are received later than expected, the time value of money comes into play. Future cash flows are worth less in present terms than those received sooner. Therefore, any delay reduces the effective return on investment because the investor's capital is tied up longer than anticipated. This results in a lower IRR compared to scenarios where cash flows are received more promptly.

In summary, the later cash flows are received, the less valuable they become in terms of present value, thus diminishing the overall assessment of the investment's performance as indicated by the Internal Rate of Return.