When using the NPV method, the interest rate used to discount cash flows shouldnot be thought of as the:

Question

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The interest rate used to discount cash flows in the NPV method is not necessarily the same as the internal rate of return (IRR) of the investment. The IRR is the rate at which the present value of the expected cash inflows equals the present value of the expected cash outflows. The NPV method, on the other hand, discounts all cash flows at a single rate, which can be the minimum required rate of return or the hurdle rate set by the company. Therefore, the interest rate used in the NPV method may or may not be the same as the IRR, so option B is incorrect. Choices A, C, and D are all correct because the interest rate used to discount cash flows in the NPV method is often referred to as the hurdle rate, the minimum required rate of return, or the discount rate.

When Using the NPV Method, the Interest Rate Used to Discount