The ________ calculates the discount rate at which an investment's present value of all expected cash inflows equals the present value of its expected cash outflows.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) calculates the discount rate at which the net present value of an investment equals zero, meaning that the present value of all expected cash inflows equals the present value of its expected cash outflows. Therefore, option D is the correct choice. Option A, income tax, is not relevant to the question. Option B, payback period, only calculates the time required for an investment to pay back its initial cost, and not the discount rate. Option C, required rate-of-return, is the minimum return an investor expects to receive, and not the discount rate. Option E, discounted cash flow methods, is a general category that includes various methods, such as net present value and internal rate of return, but it is not the specific answer to this question.

The ________ Calculates the Discount Rate at Which an Investment's