Asked by Katie McFarland on Jun 12, 2024
Verified
The internal rate of return for a proposed investment can be calculated:
A) if the cash flow table is identical to future values of a series of cash flows.
B) if the future value of a series of cash flows can be arrived at by the annuity accumulation factor.
C) by finding a discount rate that yields a zero net present value for a proposed investment.
D) by finding a discount rate that yields a positive net present value for a proposed investment.
Internal Rate of Return
A financial metric used to evaluate the profitability of potential investments, calculated as the interest rate that makes the net present value of all cash flows equal to zero.
Net Present Value
The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used to assess the profitability of an investment or project.
Discount Rate
The interest rate used in discounted cash flow analysis to determine the present value of future cash flows.
- Comprehend the internal rate of return as an instrument for decision-making in investments.
Verified Answer
NQ
nurse queenJun 17, 2024
Final Answer :
C
Explanation :
The internal rate of return (IRR) is the discount rate at which the net present value (NPV) of the investment equals zero. Therefore, option C is the correct choice as it indicates the method of finding the IRR by discounting the cash flows to their present value and finding the rate that makes the NPV zero. Option A and B are incorrect as they do not take into account the present value of cash flows. Option D is incorrect as it refers to the discount rate that yields a positive NPV, which can be used to determine whether an investment is profitable, but it does not necessarily correspond to the IRR.
Learning Objectives
- Comprehend the internal rate of return as an instrument for decision-making in investments.