Kate has just been asked to ........(see in the pic) 10. Kate has Just been aske

Question

Kate has just been asked to ........(see in the pic) 10. Kate has Just been asked to analyze an investment to determine if it is acceptable. Unfortunately, she is not being given sufficient time to analyze the project using various methods. She must select one method of analysis and provide an answer based solely on that method. Which method do you suggest she use in this situation? A. Internal rate of return B. Payback C. Average accounting rate of return D. Net present value E. Profitability index

Explanation / Answer

Solution:

A. Internal Rate of Return.

Internal rate of return (IRR) is the measure to determine the expected returns that a project or investment will generate taking into consideration the time value of money. IRR is one of the most sought out methods used to suggest the acceptability of a project as it suggests the returns a project is expected to deliver post taking into consideration the time value of money. IRR calculated can be compared to the required return and then acceptance or rejection can be easily decided.

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