Reference: 10-12
Hanley Company purchased a machine for $125,000 that will be depreciated on the straight-line basis over a five-year period with no salvage value. The related cash flow from operations is expected to be $45,000 a year. These cash flows from operations occur uniformly throughout the year.
-Once the internal rate of return on a project is known, it is compared to which of th? following?

Question

Quizplus · Accepted Answer

The internal rate of return (IRR) is a measure of the profitability of a project and indicates the rate at which the project's net present value (NPV) is zero. Therefore, the IRR is compared to the cost of capital rate to determine if the project is a worthwhile investment, as it represents the minimum rate of return that the project should generate to cover the cost of capital. The tax rate, net present value, and tax shield are also important considerations in investment decisions, but do not directly relate to the comparison of IRR to the cost of capital rate.

Reference: 10-12 Hanley Company Purchased a Machine for $125,000 That Will Be