The internal rate of return for a project can be determined: A) only if the project's cash flows are constant. B) by finding the discount rate that yields a zero net present value for the project. C) by subtracting the company's cost of capital from the project's profitability index. D) only if the project profitability index is greater than zero.
Added by Kelly H.
Step 1
Step 1: The internal rate of return (IRR) for a project is the interest rate that makes the net present value (NPV) of the project's cash flows equal to zero. Show more…
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Consider a project where the initial cash flow is negative and where all subsequent cash flows are positive. For this project, what must be true if the project's internal rate of return, or IRR, is less than the required rate of return? a. Payback < 1 b. NPV < 0 c. PI < 0 d. Payback is undefined e. NPV > 0
Jennifer S.
The internal rate of return is: The discount rate that makes the net present value of a project equal to the initial cash outlay. Equivalent to the discount rate that makes the net present value equal to one. Tedious to compute without the use of either a financial calculator or a computer. Highly dependent upon the current interest rates offered in the marketplace. A better methodology than net present value when dealing with unconventional cash flows.
Madhur L.
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