A method that discounts future cash flows at a rate that makes the net present value of the project equal to zero is known as

Question

Quizplus · Accepted Answer

The method described in the question is the definition of internal rate of return (IRR), which is the rate at which the present value of future cash flows equals the initial investment. Therefore, the correct answer is A, internal rate of return.

B) Net present value is calculated by discounting future cash flows at a given rate, but not necessarily at a rate that makes the NPV equal to zero.

C) Payback method measures the time it takes for an investment to recover its initial cost, and does not take into account the timing or magnitude of cash flows beyond the payback period.

D) Break-even point is the level of sales or production at which total revenues equal total costs, and does not involve discounting future cash flows.

A Method That Discounts Future Cash Flows at a Rate