Which statement concerning the internal rate of return method of capital budgeting is true?

Question

Quizplus · Accepted Answer

The statement that "When the net present value is equal to zero, the cost of capital (discount rate) and the internal rate of return are equal" is true. This is because the internal rate of return is the discount rate that makes the net present value zero, meaning that the cash flows are exactly offsetting the cost of the investment. It is not true that the interest rate chosen in the internal rate of return method will have a direct relationship with the present value of future cash flows, and it is not true that the internal rate of return is the discount rate that will always produce a positive net present value. The cost of capital is the interest rate that reflects the cost of raising capital for the investment, but it may not necessarily be the same as the internal rate of return.

Which Statement Concerning the Internal Rate of Return Method of Capital