The internal rate of return of a capital investment
A)Changes when the required rate of return changes.
B)Is equal to the annual net cash flows divided by one half of the project's cost when the cash flows are an annuity.
C)Must exceed the required rate of return in order for the firm to accept the investment.
D)Is similar to the yield to maturity bond.
E)Answers c and d are both correct.

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is the discount rate that makes the net present value of the investment equal to zero. Hence, it inherently considers the required rate of return, and the IRR must exceed the required rate of return for the investment to be accepted. Additionally, when the cash flows are an annuity, the IRR is equal to the yield to maturity of a bond. Therefore, choices C and D are both correct, making answer E the best choice.

The Internal Rate of Return of a Capital Investment