Which of the following statements is true about the internal rate of return? a.It is the interest rate that sets a project's net present value at zero. b.It is the minimal acceptable interest rate on an investment. c.It is the difference between the present value of the cash inflows and outflows associated with a project. d.It is the difference between the present value of a cash outflow and the depreciation associated with an asset.

The internal rate of return is a financial measure used to measure the attractiveness of a…

Answered: Which of the following statements is…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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The internal rate of return is the: discount rate that makes present value of cash inflows equal to present value of cash outflows. discount rate that causes a project's after-tax income to equal zero. discount rate that results in a zero net accounting return. rate of return required by the project's investors.
The payback period is a non - discounted cash flow technique that measures: a. The time required to recover the initial investment b. The profitability of the project c. The net present value of the project d. The internal rate of return of the project
Which of the following statements is true? O The salvage value of new equipment should not be considered when using the internal rate of return method to evaluate a project. O The internal rate of return method assumes that the cash flows generated by a project are reinvested at a rate of return that equals the company's cost of capital. O The profitability index and the internal rate of return will always result in the same preference ranking for investment projects. O In calculating the profitability index, the initial investment in the project should be reduced by any proceeds from the sale of old equipment. O None of the above statements is true.
The AW of a project can be estimated by reducing all cash flows including the capital investment, salvage value in terms of annualized cash flows at an interest rate( i). Select one: True False
Mathematically, we can determine the rate of return for a given project’s cash flow series by identifying an interest rate that equates the present worth of its cash flows to zero. Select one: True False and explain
To calculate net present value of a project with normal cash flows, find the present value of the expected cash flows, and subtract A) retained earnings. B) the cost of the investment. C) the factor loading. D) the payback period.
An advantage of the internal rate of return method is that a.it considers the time value of money. b.it can rank proposals of equal lives. c.it considers the cash flows of the investment. d.All of these choices are correct.
Which of the following statements is CORRECT? a. If a project with normal cash flows has an IRR greater than the cost of capital, the project must also have a positive NPV. b. If a project with normal cash flows has an IRR less than the cost of capital, the project must have a positive NPV. c. If the NPV is negative, the IRR must also be negative. d. A project's MIRR can never exceed its IRR. e. If Project A's IRR exceeds Project B's, then A must have the higher NPV.
What does the term "Net Present Value (NPV)" represent in finance? a) The total revenue generated by an investment b) The difference between the present value of cash inflows and the present value of cash outflows c) The total cost of an investment project d) The total profit earned from an investment
Which investment criteria answers the question: "How quickly do we recover our investment, in nominal dollars?" A) net present value B) internal rate of return C) profitability index D) payback period
22)
For a normal project, profitability index is the ratio of: a. The net present value of the project’s net cash flow to the project’s initial investment.b. The net present value of the project’s net cash flows to the project’s IRR.c. The present value of the project’s cash flows to the project’s IRR.d. The present value of the project’s cash inflows to the project’s initial investment.e. All of the above properly describe the profitability index.

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	a.	It is the interest rate that sets a project's net present value at zero.
	b.	It is the minimal acceptable interest rate on an investment.
	c.	It is the difference between the present value of the cash inflows and outflows associated with a project.
	d.	It is the difference between the present value of a cash outflow and the depreciation associated with an asset.