Using the Internal Rate of Return approach to investment,one would undertake an investment if the internal rate of return
A) equals zero.
B) equals the interest rate.
C) exceeds the interest rate.
D) is less than the interest rate.

Question

Quizplus · Accepted Answer

The Internal Rate of Return (IRR) approach to investment involves calculating the discount rate at which the net present value of an investment becomes zero. If the IRR exceeds the interest rate, then the investment is expected to generate a return that is higher than the cost of financing the investment. Therefore, the best choice is C, as it indicates that the investment is expected to be profitable. Choices A and D are incorrect, as an IRR of zero or less than the interest rate would indicate that the investment is not expected to generate a return that is higher than the cost of financing the investment. Choice B is also incorrect, as the interest rate is not necessarily indicative of the expected return on the investment.

Using the Internal Rate of Return Approach to Investment,one Would