The discount rate that makes the net present value of an investment exactly equal to zero is called the
A)profitable rate of return.
B)internal rate of return.
C)average accounting return.
D)profitability index.
E)risk-free rate.

Question

Quizplus · Accepted Answer

The discount rate that makes the net present value of an investment exactly equal to zero is called the internal rate of return (IRR). It is considered one of the most important techniques for evaluating capital budgeting projects since it takes into account the time value of money and the cash flows associated with the project. The higher the IRR, the more desirable the investment is considered to be. Therefore, the correct answer is B, internal rate of return.

The Discount Rate That Makes the Net Present Value of an Investment