Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 17Q: What is the difference between the discount rate used for net present value and the internal rate of...
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Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
![The internal rate of return (IRR) is the discount rate that results in a net present value
(NPV) of zero.
True
False](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7c60a268-1d84-482d-9206-b95a5691fab0%2F6c224e7d-9540-4263-9fc5-98e71e70c0e1%2Feigkp4j_processed.jpeg&w=3840&q=75)
Transcribed Image Text:The internal rate of return (IRR) is the discount rate that results in a net present value
(NPV) of zero.
True
False
![Acme Industries is considering a project that will cost $200,000 and generate returns
of $45,000 at the end of year 1, $85,000 at the end of year 2, $65,000 at the end of
year 3 and $30,000 at the end of year 4.
Calculate the NPV of the project using a cost of capital of j1=6.5%. Round your
answer to the nearest dollar.
Your Answer:
Answer](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F7c60a268-1d84-482d-9206-b95a5691fab0%2F6c224e7d-9540-4263-9fc5-98e71e70c0e1%2Fwi8j8t_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Acme Industries is considering a project that will cost $200,000 and generate returns
of $45,000 at the end of year 1, $85,000 at the end of year 2, $65,000 at the end of
year 3 and $30,000 at the end of year 4.
Calculate the NPV of the project using a cost of capital of j1=6.5%. Round your
answer to the nearest dollar.
Your Answer:
Answer
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