A company is contemplating an investment of $650,000 that is expected to yield a net present value of zero.Which of the following statements is true?

Question

Quizplus · Accepted Answer

If the net present value of an investment is zero, it means that the investment is expected to generate cash flows that are equal to the initial investment. Therefore, the internal rate of return (IRR) of the investment will be equal to the required rate of return, which is the minimum rate of return that the company expects to earn on its investments. Option A is incorrect because the IRR cannot be zero if the investment is expected to generate positive cash flows. Option C is incorrect because the accounting rate of return is based on accounting earnings rather than cash flows. Option D is incorrect because the investment is expected to generate cash flows that are equal to the initial investment, which means that there will be no profit or loss.

A Company Is Contemplating an Investment of $650,000 That Is