Asked by Eliza Howard on Jul 05, 2024
Verified
What is the internal rate of return?
A) The discount rate at which the present value of expected cash inflows and outflows is equal.
B) The discount rate that makes the net present value of the cash flows equal zero.
C) The discount rate at which the present value of expected cash inflows and outflows is equal AND the discount rate that makes the net present value of the cash flows equal zero.
D) The present value factor used to discount cash flows.
Internal Rate of Return
A financial metric used to evaluate the profitability of an investment, representing the interest rate at which the net present value of costs and benefits of the investment are equal.
Net Present Value
A financial metric that calculates the difference between the present value of cash inflows and the present value of cash outflows over a period of time.
Discount Rate
The interest rate used to determine the present value of future cash flows in discounted cash flow analysis.
- Acquire the knowledge to determine and calculate the internal rate of return (IRR) for various investment opportunities.
Verified Answer
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Fabiola BautistaJul 06, 2024
Final Answer :
C
Explanation :
The internal rate of return (IRR) is both the discount rate at which the present value of expected cash inflows and outflows is equal and the discount rate that makes the net present value of the cash flows equal zero. The other options are either incomplete or not accurate descriptions of the IRR.
Learning Objectives
- Acquire the knowledge to determine and calculate the internal rate of return (IRR) for various investment opportunities.