A college education for Bill,using the market rate of interest of 5%,has a net present value of $50,000.Which of the following is an internal rate of return consistent with this present value?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero. If the NPV at a 5% market rate of interest is positive ($50,000), it means the IRR must be higher than the market rate of 5% to reduce the NPV to zero. Therefore, 6% is the only rate higher than 5% among the options, making it consistent with the given NPV.

A College Education for Bill,using the Market Rate of Interest